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Thursday, November 5, 2009

Harris&Ewing Fourth Liberty Loan September 30, 1918Crowds gathered for a war-bond rally on Pennsylvania Avenue with the Capitol in the distance.

Ilargi: Yeah, yeah, initial claims are down a few thousand, so there's a party in the markets. Long-term unemployment keeps going up by at least as much as initial claims decrease, but that has no effect on investors. After all, productivity is on a roll. While hours are down, and so are wages. More work for less pay. Who could refuse such a deal? Extensions for homebuyer credits and long-term benefits. Extend and pretend, the economic version of don’t ask don't tell, rules the day.

There are many different regulatory reform plans, in several phases of the pipeline, for the financial world (or at least the financial US). Those from the Obama administration, which look hugely different from Sen. Chris Dodd's Senate proposals, while Rep. Barney Frank hangs somewhere in between with his House ideas. All three purport to address both the regulation of the banking system and the regulatory agencies themselves.

But without having read much of the details, I have zero faith in any plan that originates with Goldman's choice puppets Tim Geithner and Larry Summers, I wouldn't want a second hand car from Chris Dodd if he gave it away), and Barney Frank, smart and amusing as he can be, is as steeped in Washington establishment and campaign donations as they come. No matter what sort of plan will eventually be adopted, it will do nothing at all to address what's really going wrong.

As Dylan Ratigan says, the Obama/Geithner/Summers plan suggests we continue to hide 80% of the derivatives trade, so nobody will see that it consists of worthless paper. William Black on the plan:

If you took everything that would absolutely maximize the risk of producing a new and bigger crisis, every single policy, that would be the bill.

Ratigan this week issues a highly eloquent and passionate plea to fire Tim Geithner. Senator Maria Cantwell wonders why the Treasury Secretary still has his job. And Prof. William Black suggests Larry Summers should ride into the sunset at Geithner's side. These are calls I haven't seen before at that level, granted.

Ron Paul makes a lot of noise about a Fed audit, gets a ton of support, and then expresses (feigns?) surprise at the fact that his audit bill is watered down enough to lack any flavor. Does he really still now know where the wind blows from, after all these years? He seems smart and likeable enough, but I find that hard to swallow.

Paul's bill is probably most useful as an example of what happens to any proposal that goes through the Capitol Hill wringer. Everything comes out in 2-D, without any depth perception, assuring that nothing is done to hurt the interests of the capital that owns the 3-D machine and keeps it lubricated.

And that’s where the real problems are. You can come up with all sorts of grandiose plans on how to regulate or re-regulate regulatory agencies and the fields they are supposed to regulate, but you will never get any results, at least not positive ones, if you let these plans be drawn up by people who have or represent vested interests and resist any meaningful change every step of the way.

Firing a few people or writing up new regulation are things that miss the point. Auditing the Fed would be better, but is a fantasy under current conditions. Losing folks like Geithner, Summers or Bernanke doesn’t change anything, they are merely well-groomed facilitators for the existing system. And it's that system that would need to be changed, not the faces that represent it.

What makes the econo-political system in the US (and other countries) such a failure in the eyes of the average citizen is that money can buy political power, in the US to an almost unlimited degree. First, this means that "one man one vote" is a poorly hidden illusion. If money can buy power, it automatically and necessarily becomes "one dollar one vote". Second, the interests of wealthy individuals or corporations are often diagonally opposed to those of the average citizen. You would like to keep your money as much as possible, while the corporate world would like to take as much away from you as it can. And if you take a good look around, you will find that you're not exactly winning this one.

So even if you don't care much about your vote as long as you can have a car and a TV, you should still pay attention, because in the end you will see be left with next to nothing. And it's your own government, the very people you have voted for, who make sure that's the outcome.

The Treasury Department is the most important part of the US government when it comes to dealing with the economy, and certainly a financial crisis like the one we're in. That is obvious. What is less so is that the Treasury for many years has been filling its main positions with people straight out of the upper echelons of the nation's monied who’s who. The no.1 spot, Secretary of the Treasury, has long been reserved for those who could be relied on to serve the interests of the corporate world.

The names successive presidents have pulled out of their hats for the post tell an interesting story of a power shift from the industrial complex towards the financial world. Since Ronald Reagan brought in Merrill Lynch CEO Don Regan in 1981 (or was it the other way around?), it's finance all the way. Since Bill Clinton picked Robert Rubin picked Bill Clinton, it's all Goldman employees and friends. Many cross through the revolving doors several times. That's how you cement your grip if you’re Goldman.

When president-elect Obama announced his economic team some 11 months ago, a lot of people had doubts. Others, like me, didn't even have those. It was clear to me from the outset that Robert Rubin, Clinton's Treasury Secretary, 26-year Goldman Sachs veteran, prime Glass Steagall destroyer and guru to Larry Summers, Tim Geithner and many others, should not have been anywhere near that team. Nor should Summers or Geithner, for that matter.

Rubin and Summers had 10 years prior been directly responsible for the de-regulation that allowed Wall Street behemoths to establish their shape (and power) which had been proven to be most guilty for the financial crisis that already ran at full blast at the time of Obama's announcement. And not only that, they were the very working brains of the Wall Street behemoths, Trojan horses.

But the core is not the folks you see on TV, the Secretaries. Goldman Sachs has dozens of (former?) employees on strategic positions in the government and around it. By the way, their new main lobbyist is a former Barney Frank staffer. Ain't that just so cute? If you’re interested, there are lists of Goldman people here here and here and here, and I don't want to dwell on them too much.

I want to focus on the fact that in the US, money, not votes, can buy political power. And most of the money resides inside the banks, especially those on Wall Street. So the banks have bought the government.

And no, that is still not the entire story, and it's not even the worst of it. Because most of the money left today does not reside in the banks. They gambled it all away, and they are all bankrupt. The only real money left now resides in the government. Which has been bought by the banks. So they now control the entire nation without having a penny to their names.

Now, if you look at it from that angle, that's quite a feat, isn't it? It's like an obsessive-compulsive gambler who's managed to get hold of the family capital.

And you need to care about this because you are the family, and your home and pensions and those of your children have been put up as collateral for the next wager. Dylan Ratigan in conversation with William Black:

Ratigan: We have legalized the casino gambling with taxpayer money, literally. It is legal for proprietary trading, which is idle speculation, although perhaps well informed and profitable, with the use of taxpayer insured assets.

Black: We not only legalized it, we backstopped it. If you win, it all goes to you, if you lose, it all goes to the taxpayers, and the American people. That is insane. Everybody knows that’s insane.

I hope it's clear by now that none of the regulatory reform plans being floated these days will solve any of the real problems. They are not designed to do so. They are designed to invoke the image of a noble fight among different political factions to clean out the elements that have broken down the system. There will be no such fight.

Firing Tim Geithner will not solve the problem either. He may end up as the fall guy somewhere down the line, but he has a ways to go now people start to believe the recovery nonsense the media keep spouting. A ways to go , and a lot more damage to do. Still, if Geithner's forced out, his place will be filled by the next drone. People talk about Paul Volcker and Elizabeth Warren for the post, but they would be powerless sitting ducks in a bankers pond.

The only way to stop the bleeding is to separate money and politics. But the presidents, Senators and Congressmen who have the power to execute that separation have no desire to do so. They owe their very positions to the donations from the very corporations they would need to throw out of Washington. The Legislative and Executive branches of government are in the hands of private capital, without which they wouldn't be able to win a single election.

You would have to appeal to the Judicial branch, the Supreme Court, for a judgment on the legality of a federal republic being ruled by a few special interest groups. But the Supreme Court has long turned into a theater of political nominations. There is no independent court left.

Which makes it look like a pretty closed system. You are allowed to participate as onlookers in a Kabuki Theater, while your present and future wealth and happiness are being stolen away from you behind closed doors somewhere far away by shady characters who own their power to the fact that they have their hands on your money.

I think people mean well in general who propose firing the most prominent executives, or auditing hidden books filled with multi-trillion frauds and losses. But I don't think they realize how far we’ve come along this path. I’m quite sure people like Dylan Ratigan and Ron Paul would define the present conundrum as a financial crisis first and foremost, with a side-dish of political issues perhaps, but nothing that couldn't be solved with a good old fashioned hard fought democratic vote. What democracy would they suggest that vote take place in, though?

To even begin to solve the problem and stop the bleeding, you would have to fire the entire government in all its branches. And then start all over with people you can guarantee have never received a penny from the ruling classes. That looks like a steep cliff to climb.

Ilargi: Just a reminder: The Automatic Earth Fall Fund Drive is still on. See the top of the left hand column. You have been very generous over the past 4 weeks, thank you so very much, but we are still not even close to where we would like to be on that particular topic. And don't let's forget that our advertisers also eagerly await your attention.

A year ago it was revealed to the American people that our banking system was a legalized Ponzi scheme in which bank and insurance CEOs paid themselves billions of dollars in personal compensation to lend and insure assets with money they didn't have to customers who couldn't pay back the loans.

In those dark days between the fall of Lehman Brothers and before the presidential election, we were often carried through that time by the small glimmer of hope in that at least we would soon have a new leader who would hopefully fix this mess and punish those responsible. Yet in the past 9 months, not only has the administration not fixed anything, they have made things much worse for anyone who isn't a Wall Street banker. Therefore, we are past the point where anyone in power still gets the benefit of the doubt and the process of taking back our country for all citizens must begin now.

This is why I think we must ask if U.S. Treasury Secretary Timothy Geithner is still the right person for the job. It has become clear recently that back in his previous role as New York Federal Reserve Governor, he unnecessarily gave billions of dollars of US tax money to banks and insurance companies with few strings attached. And it is now becoming clear that his lack of meaningful action is helping many of these same banks steal more by legalizing their most economically dangerous, socially destructive and self-enriching practices.

Yesterday on NBC's Meet the Press, Secretary Geithner again endorsed House bank reform legislation that would allow, by my calculations, as much as 80%, or $475 trillion, of the bank's $600 trillion in crooked insurance schemes to still be held in secret. It was and is the secret risks held in this very market that led to our collapse in the first place and continue to pose massive future risk to the global economy.

He also continued to employ the bankers' favorite, and most ludicrous, lie : that the taxpayer must somehow continue to pay executives at companies like AIG ungodly sums of money under the threat that if we don't, somehow the taxpayer will never make their money back. Well let me tell you something, the taxpayer and our nation, will never get back the lost wealth taken under these false circumstances and this colossal breach of fiduciary duty. The idea that we must somehow perpetuate this system with our tax money and the future wealth of our children goes against the very American ideal of failure, adaptation and innovation, not to mention of our democracy.

Also last week, the Treasury Secretary endorsed a piece of legislation that instead of stopping a select few companies from profiting from the implicit taxpayer-guarantee of Too Big Too Fail seeks to officially condone it. If the most prized skill in our society economically is a competition to see who can lend and insure the most money without consequences, you have doomed our nation's people to lose everything in the world's largest ever betting parlor; and that is precisely the system this Treasury Secretary -- Tim Geithner -- is seeking to legalize in America today.

However, the smoking gun for Secretary Geithner comes from a recent Bloomberg FOIA disclosure regarding events from last November. It was then that New York Federal Reserve Governor Tim Geithner decided to deliver 100 cents on the dollar, in secret no less, to pay off the counter parties to the world's largest (and still un-investigated) insurance fraud -- AIG.

This full payoff with taxpayer dollars was carried out by Geithner after AIG's bank customers, such as Goldman Sachs, Deutsche Bank and Societe Generale, had already previously agreed to taking as little as 40 cents on the dollar. Even after the GM autoworkers, bondholders and vendors all received a government-enforced haircut on their contracts, he still had the audacity to claim the "sanctity of contracts" in the dealings with these companies like AIG.

None of us were in the rooms when these decisions were made, so I don't pretend to know if Mr. Geithner was the one lone, sane voice of reason fighting against mysterious forces or the primary proponent. However, I fail to see the reasoning for why we continue to rely on those who were in the room when these horrendous decisions took place to be the same people that we choose to deal with their aftermath. There are just certain situations that are not suited for continuity. The best analogy I can think of is that it would be like asking Al Cowlings to spearhead the Nicole Brown Simpson murder investigation under the premise that he knows the layout and the "players" best.

The fact is that there are people who understand all of the intricacies of finance and policy as well as Secretary Geithner, but whose allegiances to the taxpayer are much clearer. People like Elizabeth Warren, Neil Barofsky, Rob Johnson, and Senator Maria Cantwell just to name a few. To stop the theft from continuing, it requires that the most basic rules of capitalism be applied to our banks and that our future national wealth be safeguarded by the US Government. The current custodian of America's wealth, Treasury Secretary Tim Geithner, is not doing a good job of either. The time for corrective action is now.

For the past nine months, the Obama team has waged a campaign of political convenience against lobbyists. Its policies against so-called special interests include: a refusal to accept lobbyists' campaign contributions, a ban on employing lobbyists within the administration, discouraging lobbyists' contact with government workers, new rules that will result in the public disclosure of every lobbyist who visits the White House, and a directive to exclude lobbyists from serving on department and federal agency boards and commissions.

All of this is meant to give the impression of purity. But this is illusory. At the same time that the White House has demonized lobbyists, it has allowed itself to be infiltrated by a different army—one made up of campaign contributors. These individuals can breeze past defenses designed to repel lobbyists.

Campaign contributors, especially those who bundled large contributions from others, have been embraced by this administration. Because they aren't formally registered or regulated in the way lobbyists are, they enjoy the benefits and privileges of serving in the heart of the administration. These contributors serve in critical foreign and domestic policy positions, as well as department and agency boards and commissions. Dozens of Obama for America National Finance Committee members have joined the administration. Most of them raised hundreds of thousands of dollars for the campaign, according to the watchdog group the Center for Responsive Politics.

This inconsistent treatment does a disservice to federal policy making. Talented women and men who registered themselves as lobbyists under the Lobbying Disclosure Act are being excluded from contributing their expertise at a critical time in our nation's history. The irony of this ploy is that it discriminates against those individuals with the greatest obligations of transparency: lobbyists who register and file quarterly reports on their activities, as well as biannual reports on their political contributions. These are all publicly available. Instead, the White House favors individuals such as political contributors who have no obligation whatsoever to inform the public of the interests they represent in their interactions with the administration.

What's more, this administration's treatment of lobbyists has only decreased openness in the policy-making system. Lobbyists are now limiting their activities and deregistering themselves in order to avoid being stigmatized. If the administration truly wants to address its stated concerns about the influence of special interests, it should focus on what the public actually cares about: the influence of money on the policy-making process. Excluding and disadvantaging professional advocates who have not given any money to the president's campaign while giving campaign contributors a free pass is bad policy.

The White House has repeatedly claimed that it wants "to change the way business is done in Washington." If the Obama administration is serious about this goal, it should apply the same rules to those who raised over $10,000 for the president's campaign that already apply to lobbyists who did not contribute a cent.

Another one of the nation's largest lenders has filed for bankruptcy. On the brink for months, CIT filed for Chapter 11 protection on Sunday. The prepackaged plan allows CIT to restructure its debt while trying to keep badly needed loans flowing to thousands of mid-sized and small businesses. The plan keeps CIT's operations alive and makes it possible for the company to exit bankruptcy by year's end.

But here's the bad news: While senior debt holders will only lose 30% of their investment, we, the U.S. taxpayer, will lose the entire $2.3 billion we lent the company this summer. William Black, professor at the University of Missouri-Kansas City School of Law is dumbfounded. "We put ourselves on the hook in a completely inept way where we lose first. We lose entirely as the taxpayers." Black, a former top federal banking regulator, blames Treasury Secretary Timothy Geithner for negotiating such a bad deal on behalf of the American public.

His argument goes as follows: The government was in no way obligated to lend the struggling CIT money and, in fact, initially refused to provide it bailout funds. More importantly, being the lender of last resort, the government should have guaranteed we'd be the first to get paid if CIT eventually filed Chapter 11. By failing to do so, "it's like he [Geithner] burned billions of dollars again in government money, our money, gratuitously," says Black.

Black believes the problem stems from regulators' fears that if the banks recognize a loss on the bad assets it will create a domino effect that will wipe out the entire financial system. "If that's true we've got to get rid of capitalism," he warns, "because if we can't recognize losses in a capitalist system we have no future."

With productivity high and real compensation low, companies captured the lion's share of the benefits of higher productivity in the form of profits. Inflationary pressures remained very low.

The huge increase in productivity explains why the U.S. economy could grow at a 3.5% annual rate in the third quarter even as jobs were being lost at a rapid pace. Obviously at some point we'll need to get everyone back in the labor force to support end user demand . That is unless we create a welfare state in which the working class supports the non-working class... or is that what we already have?

The Treasury Department now expects to hit the government’s debt limit in December, two months later than its initial estimate, after scaling back an emergency loan program as the financial crisis abated. Treasury Department officials said Wednesday they’re working closely with Congress to pass the legislation needed to boost the debt ceiling, currently at $12.1 trillion, and avoid an unprecedented default on the nation’s debt obligations.

Treasury also announced it is ending sales of 20-year inflation-protected securities and will offer similar 30-year securities starting next year. The government believes the longer maturity option will be more popular with investors. The legislation to increase the debt limit is expected to trigger a congressional debate over the government’s soaring deficits, which are projected to add another $9 trillion to the debt burden over the next decade.

The government initially estimated the debt ceiling would be hit last month, but in September it reduced one of the many emergency borrowing programs to $15 billion, from $200 billion. That cleared more room for the government’s other borrowing needs. Congress still faces the need to boost the debt limit by around $1 trillion. Some senators have said they will not support that action unless it is linked to the creation of a commission that would force Congress and the administration to take credible action to restrain soaring deficits.

The administration has said the current record deficits are needed to get the country out of a deep recession and stabilize the financial system, but that the President Barack Obama will put forward new proposals to trim future deficits when he sends his next budget to Congress in February.

For the budget year that ended on Sept. 30, the federal deficit hit an all-time high in dollar terms of $1.42 trillion. As a percent of the total economy, it stood at its highest level since the end of World War II. The jump reflected the massive spending from the $700 billion financial bailout fund and the $787 billion economic stimulus package designed to get the country out of the longest recession since the 1930s. "Deficits of this size are serious and ultimately unsustainable," White House budget director Peter Orszag said in a speech Tuesday.

The deficits are making it harder for the administration to extend politically popular stimulus programs, such as support for the unemployed and the tax credit for first-time homebuyers, without greatly increasing the size of future deficits. In its announcement Wednesday, Treasury said it decided to move to 30-year inflation protected securities, known as TIPS, because it believe the longer maturity would be more popular with investors. Treasury also offers TIPS in five- and 10-year maturities.

The value earned by an investor on a TIPS bond fluctuates with changes in the consumer price index, giving investors protection that the value of their bonds will not drop if inflation accelerates. Treasury also announced that it will raise $81 billion in its quarterly refunding operations next week including $40 billion in three-year notes to be auctioned on Monday, $25 billion in 10-year notes to be auctioned on Tuesday and $16 billion in 30-year bonds to be auctioned on Thursday.

Senate Banking Committee Chairman Christopher Dodd (D-Conn.) plans to circulate a draft bill of sweeping financial reforms as early as next week that breaks with the Obama administration and the House on two key issues, officials said.

The legislation, which is still being finalized, would consolidate federal responsibility for banking oversight, now assigned to four different agencies, into a single regulator. And, compared to the plan rolled out by the White House, Dodd's measure would grant less power to the Federal Reserve to curb activities that pose a risk to the entire financial system, the officials said. Under pressure from the administration to move quickly, Dodd now plans to move forward without bipartisan support, sources familiar with the matter said.

Dodd has said that he and Sen. Richard Shelby (R-Ala.), the committee's ranking Republican, have been holding regular meetings to talk about the pending legislation. But staff members on both sides of the aisle say the two men have yet to see eye to eye on a number of issues, from a proposal to create a new consumer agency to heightened government authority for dealing with large, troubled financial firms. "I don't think they ever got close to agreeing on it," said one Democratic staffer.

Whether the two sides ultimately will find middle ground remains unclear. "Sen. Shelby has not agreed to anything," his spokesman, Jonathan Graffeo, said Tuesday. "But we've yet to see the draft bill." Dodd hopes his committee will start the formal process of approving his bill as early as the week after next, spokeswoman Kirstin Brost said. Dodd's measure would reshape Washington's oversight of Wall Street on a more dramatic scale than a parallel effort in the House. The House bill would eliminate only the Office of Thrift Supervision, which regulates thrifts, while Dodd is looking to consolidate all four bank regulators into one.

An administration official, who has reviewed summaries of the bill, called Dodd's bill a good start and has expressed openness to the idea of a consolidated regulator. Meanwhile, the House Financial Services committee has moved forward its own version of the bill. That committee has passed legislation to regulate the largely unmonitored world of financial derivatives and to create a new federal agency that would monitor mortgages, credit cards and other loans to consumers. The House committee is set on Wednesday to debate the details of legislation giving the government broad power to keep watch for systemic risks to the economy and to wind down large, troubled financial companies.

Rep. Barney Frank (D-Mass.), who chairs the House committee, said he plans to move his version of the regulatory reform proposal through the entire House before the end of the year. "I don't have any question that it will be finished by the first week of December," Frank told reporters on Tuesday. The press conference by Frank and leaks about Dodd's plan were not coincidental, sources familiar with the matter said. The administration and Democratic lawmakers, who are all trying to keep the reform effort from losing steam, coordinated their publicity to illustrate that progress was being made.

Frank told reporters he was open to legislative changes that would allow the government to seize and dismantle large financial firms. For instance, he said he could agree to new language calling for these firms to be assessed upfront fees to cover the cost of a large firm's collapse. Earlier language called for charging the firms after a failure. Federal Deposit Insurance Corp. chairman Sheila Bair has questioned the wisdom of that latter approach, but the administration prefers assessing the fee afterwards.

Frank added that he wants to see the Consumer Financial Protection Agency led by Harvard Law Professor Elizabeth Warren, who was a key architect of the new agency. "I want Elizabeth Warren to be the first head of this agency," Frank said. But some Republicans oppose the agency altogether, saying it would unnecessarily reduce the availability of loans and other financial products.

A key Senate lawmaker is readying legislation that would dramatically redraw how the financial system is regulated, setting the chamber on a collision course with both the House of Representatives and the Obama administration, which have championed markedly different approaches.

The bill, which is being readied by Senate Banking Committee Chairman Christopher Dodd (D., Conn.), would strip almost all bank-supervision powers from the Federal Reserve and Federal Deposit Insurance Corp., according to people familiar with the matter. In their place, the bill would create a new agency in charge of supervising all banks and bank-holding companies, even the country's largest and most complex institutions. Mr. Dodd's proposal also would create a powerful council of regulators, overseen by an independent White House appointee, charged with monitoring risks to the financial system.

Senate aides say the legislative plan could still be adjusted in coming days. In its current form, it has the potential to disrupt progress of the financial-regulation overhaul, one of the legislative priorities of the administration. Administration officials have billed the revamp as central to their effort to prevent a recurrence of last year's financial meltdown. Mr. Dodd's proposal stakes out an extreme position, and is likely to face major resistance, especially from the banking industry. His effort comes as he prepares for a tough re-election battle in 2010. Mr. Dodd has been criticized for being too cozy with the banking industry in the past. This year he has advanced various proposals attacking banking practices, such as a new law limiting certain credit-card fees.

Even if his regulatory-overhaul plan runs aground, it could help Mr. Dodd position himself as a populist lawmaker willing to wage war on powerful financial institutions. Legislation being ushered through the House by Rep. Barney Frank (D., Mass.) differs in many ways from Mr. Dodd's proposal. Mr. Frank's series of bills, which could come to a full vote in the House in December, would eliminate the bank-supervisory powers of just one federal agency, not three. The Fed's role in bank regulation would be expanded, not diminished, with the Fed getting new responsibility for the nation's largest financial institutions. And in Mr. Frank's version, the council of regulators appears much less powerful than in Mr. Dodd's.

A final agreement is still months away. The House and Senate must pass their own bills, and differences between them will have to be reconciled. Mr. Dodd's plan to create a single national bank regulator is likely to draw fire. There are currently four different institutions with that responsibility. The banking industry has resisted such consolidation, worried that a single regulator would tend to favor large, national institutions at the expense of smaller ones. FDIC Chairman Sheila Bair has pushed back against efforts to strip her agency of the power to supervise banks, describing a system of multiple regulators as the best guard against mistakes by any one of them. In October, appearing before Mr. Dodd's panel, Ms. Bair opposed consolidating supervision in one agency.

Under Mr. Dodd's plan, the FDIC would remain an insurer of deposits and the main agency overseeing bank failures. It also would be given the new job of dissolving large financial institutions on the brink of collapse. Fed officials have also strongly resisted proposals to strip their authority, such as their current oversight of 800 banks and 5,000 bank-parent companies. Mr. Dodd's proposal is expected to retain the Fed's ability to serve as a "lender of last resort" to the financial system. The Fed would be allowed to attend bank examinations conducted by the new megaregulator, to keep a "finger on the pulse" of the banking system, one congressional aide said.

Under the proposal, the Fed likely would emerge as a completely different agency, having lost most bank-supervisory powers and the ability to write and enforce consumer-protection rules. Mr. Dodd's bill will likely throw into question the future of the 12 Federal Reserve Banks, which is where most of the Fed's bank examiners are based. Instead, the Fed would focus mostly on monetary policy. Last month, Fed Chairman Ben Bernanke said the central bank's ability to conduct an "effective monetary policy" depended heavily on its role as a bank supervisor.

The Obama administration considered merging bank regulators as it was formulating its own proposals earlier this year, but officials say they nixed the idea as unlikely to get through Congress. An administration official said the White House has been briefed on Mr. Dodd's proposal. "I think we are going to start out with the presumption of as much consolidated regulation as we can," said Sen. Jack Reed (D., R.I.) a senior member of the Senate Banking Committee.

Proponents of consolidating agencies argue such a move would stop banks from shopping around for the regulator with the lightest touch. Mr. Dodd's plan is likely to face opposition within the Senate. Republicans are mostly lined up to oppose the creation of a new regulatory agency that would focus on consumer-oriented financial products.

Price Trends / WAR OF THE WORLDS: If you use a 20-year time horizon, and assume prices will return to the trend line, then our residential property bubble will bottom after values fall over 40% from current levels (see above (c) aka "(Y) – (Z)" aka "Loss Today to Bottom"). I make no predictions. I do watch numbers. The chart shows a catastrophe of falling real estate values loaded up on top of our current catastrophe in real estate values.

No one would question these numbers absent The War of the Worlds. The War of the Worlds is the United States Government versus aggregate borrower income. Uncle Sam is funding every new mortgage – high, low and in between (see chart below: the blue and red are government-backed loans). It takes very little imagination to see the world of real estate prices vaporizing without government support. If that support was lost, values would crash down faster than a big rock dropped into a shallow puddle.

While the federal government has deep pockets, at some point the persons who take out the mortgages will have to pay them. At that point the market should follow the pattern described above by the trend line. Reality bites. Prices for real estate are ultimately determined by our income, and if the trend represents a match of income and price, then the trend line is the picture of our future.

The CBO has a new "economic and budget issue brief" out on one of our favorite subjects, federal support for housing. The gist: there's a lot of it. I've written about this stuff before, but this time around one factoid especially caught my attention: The CBO estimated that about $230 billion went to supporting homeownership in 2009, and $60 billion to helping renters.

A little further on, there was this somewhat depressing observation:

Federal housing policy has long aimed to increase the rate of homeownership and, to a lesser extent, make rental housing affordable for low-income families. The nation has made more progress on the former goal than on the latter. Homeownership rates increased steadily throughout the 1990s and early 2000s, peaking in 2004 at just under 68 percent of all households ...

However, the proportion of households paying more than 30 percent of their income for housing—an amount that is often categorized as unaffordable in light of households' other needs—increased steadily from 1997 to 2007. The burden of housing's costs is more pronounced among renters than among owners: In 2007, 45 percent of renters (compared with 30 percent of owners) paid more than 30 percent of their income for housing.

So by turning homeownership subsidies into another middle class entitlement, we've actually made housing less affordable for lots of Americans. Brilliant!

First time home buyers have risen from a tiny percentage of the market for homes to making up a significant portion of the market. Even the panic at the end of 2008 barely slowed down the first timers. In the most troubled markets, such as Las Vegas, Nevada, the first time buyers are actually dominating the market. FHA loans are extremely popular with first time home buyers, which is one reason that the market for homes has become so dependent on the FHA.

It seems many people are takin advantae of two major prorams at the low end of the housin bubble: the FHA is aggressively promoting lending with only 3.5% down, and the $8k tax credit for buying a house less than $200k. A good realtor can apply the tax credit to last years taxes, making sure that the buyer actually gets the money right away, and the HUD is actually OK with using the $8k to make buying a home a no-money-down proposition. Remember horror stories of sellers who would pay make the slim downpayment, and leave the stupid investors with losses? Well, today that game is over, except for the government, which proves that stupidity in the private sector actually loses people money, causing them to change their ways. For the government, it's just more incentive to double down.

A person who can't afford a down payment should not be in a home. One needs capital to pay for routine maintenance, and most importantly, if something major happens, like if a heater breaks. A renter is someone who does not have the wherewithall to handle these large, unanticipated expenses. It is better for everyone if these people are renters, because otherwise a bad break leaves the property in poor shape, leading to a 'broken windows' problem.

No private bank would lend in such a manner, but FHA wants to take the risk, because unlike the greedy bank, it sees the 'bigger picture', presumably.

The government's program reminds me of the technique children independently discover to make it look like they've eaten up hated peas or carrots: spread them around the plate. Thus, the recent economic debacle is primarily centered on housing, especially lower-end housing financed by overeager lenders. The unavoidable endgame to this problem is fewer houses, and lower prices for those houses; demand was artificially high. But, we wouldn't want people to adjust, because every good Keynesian knows that all misallocations of resources in a complex economy can be solved via top down injections o fiat money, or "G"--they have the multipliers to prove it!

To the government every hangover needs a little more hair of the dog. A friend of mine says his rental real estate business is slow at the top end, because those renters are attracted to the FHA loan/$8k tax credit. Those kind of effects are basically unmeasurable, and what can't be measured is not counted. What about the complex dynamics implicated by the finite nature of the $8k tax credit? Preventing the pain with a temporary subsidy merely prolongs the amount of time spent in the doldrums (eg, 1933-39 was a period of very high unemployment).

Bad governments prioritize the seen over the unseen, the direct over the indirect. The sad fact is popular policies usually have highly concentrated benefits and highly distributed costs, and the politicians act like little children, hoping those watching do not notice stuff that's spread around.

More ammo for the housing bears here: Despite the dips in both the Case-Shiller and FHFA Home Price Indices, houses still aren't affordable based on historical price/income ratios. Historically, both indices have generally tracked Mean Household Income, but as this chart in a new report from St. Louis Fed (.pdf) indicates, as of the middle of this year, there's still no convergence. And based on the upswing in Case-Shiller numbers over the summer, that's still the case. Remove all of the extraordinary government support from the market, and it's easy to see prices dipping below the lines before they stabilize.

Being one of the most vigilant observers of the U.S. housing market – as well as one of the most vociferous critics of fraudulent “statistics”, there was little chance that Bloomberg's attempt to “rewrite history” would slip past me.

Here is the new version of “history” which Bloomberg spewed out Thursday:

About 18.8 million homes stood empty in the U.S. during the third quarter...The record-high was in the first quarter [of 2009] when 18.95 million homes were vacant.

Unless the U.S. propaganda-machine has also re-written the rules of arithmetic, then the 19 million empty homes which Bloomberg reported for last year (in February) is a larger number than the 18.95 million which Bloomberg claimed was a record this year.

Admittedly, as far as statistical lies go, this particular example is hardly earth-shattering. However, what is important is it clearly established the fact that U.S. propagandists are simply inventing numbers when they report “statistics”.

The really important departure from reality is how Bloomberg (and the rest of the U.S. propaganda-machine) have simply ignored the millions of already-foreclosed properties which U.S. banks are hiding from the market.

As I demonstrated in “Fantasy Housing Numbers a Prelude for NEXT U.S. Housing Crash”, U.S. banks are on track to record close to 5 million foreclosures and repossessions – just in the current year. However, they are only on pace to sell about 1.5 “distressed properties” (which also include “short sales”). This simple arithmetic means that U.S. banks are adding at least3.5 million empty homes to the millions of foreclosed properties they were already holding off the market prior to this year.

Obviously, if there were 19 million empty homes at the end of 2008, and at least 3.5 million more empty homes this year (just counting only those being held by U.S. banks), then the real total of U.S. empty homes today would be at least 22 million. Clearly, Bloomberg's claim of 18.8 million empty homes in the U.S. in the 3rd quarter of this year has absolutely no connection to the “real world”.

Presumably a major news organization like Bloomberg is able to keep track of its own prior published articles, which strongly suggests the deliberate attempt to deceive. Interestingly, Bloomberg's previous report on U.S. empty homes provides some data which strongly supports my assertion that U.S. banks have been accumulating vast quantities of foreclosed properties.

Bloomberg noted in February that at the end of the 3rd quarter of 2008 U.S. banks were holding $11.5 billion worth of foreclosed properties (in nominal value) – more than double what they held a year earlier. This doubling of the banks' inventories of foreclosed properties occurred during a year when there were 'only' 2.2 million foreclosures.

This year, U.S. banks are on pace to nearly double the total number of foreclosures from 2008 – yet all the reports from U.S. propaganda outlets indicate declining inventories of unsold homes, month after month.

This farce also extends to the new home market – except the fabrications are even more extreme. U.S. home-builders have been building roughly 50% more homes than they are selling, for every month for the last two years. This is why the U.S. propagandists never report “new home sales” and “new home starts” in the same article. Despite this horrendous discrepancy, and a long-term trend which can only end with mass-bankruptcies among home-builders, “inventories” of new homes have been reported as declining every month.

This sham just hit a new level of absurdity this week. When “new home sales” were reported this week, there was a “surprising” decline in the latest reading – and the previous month's number was revised lower. Yet in the same piece of propaganda it was reported that the inventory of new homes still supposedly declined in the last month.

Putting aside the huge, existing gap between new home starts and sales, one would think that the compulsive liars of the U.S. propaganda-machine would not have the audacity to report increasing “starts” of new homes, decreasing sales – and still claim that inventories were falling. Clearly this is nothing less than a "slap in the face" for market sheep - who are presumed to be so brain-dead that the propagandists can write 100% contradictory "facts" in the same article, and expect no one to notice.

Returning to the millions of foreclosed properties which U.S. banks are holding off the market, obviously part of the reason for this was to try to halt the collapse in housing prices. If U.S. banks had dumped an additional 5+ million homes onto the market (equal to a full year of demand by itself) then instead of the collapse in U.S. housing prices easing, it would still be accelerating.

However, as I pointed out in “Who OWNS Foreclosed U.S. Properties, Part II: the role of MERS”, there is a second reason for U.S. banks to hide all these millions of foreclosed properties: credit default swaps. This $50+ trillion market represents the phony “insurance” on the entire Wall Street Ponzi-scheme – which was the key to (so-called) “regulators” allowing the U.S. financial crime syndicate to leverage the entire financial sector by an utterly insane average of 30:1.

Now, with the U.S. housing market collapsing, these credit default swaps are being triggered. Selling these foreclosed properties locks-in the banks' losses – causing these massive obligations to come due. As I illustrated in “Bankster Sues Bankster – AGAIN”, in one example of a credit default swap, Citigroup (C) is suing Morgan Stanley (MS) to collect on this contract.

Even after the “collateral” which “backed” this insurance was liquidated, Morgan Stanley is still facing a pay-out of more than 300:1 based on the premiums it received for this insurance. While not every CDS will require 300:1 pay-outs, there is no reason that some of these payments could not exceed 300:1 – given the gross negligence of regulators in not requiring adequate collateral for this $50+ trillion “insurance market”.

If you take the billions in losses which U.S. banks are racking-up on foreclosed U.S. properties, and then start making 300:1 pay-outs on those losses, it doesn't take long for the entire U.S. financial system to appear hopelessly insolvent – even with the new, fraudulent accounting rules enacted in the U.S. in April.

For the benefit of new readers, I will repeat my warning: it is perilous to accept any U.S. government-reported statistics at “face value”. The absurd reading on 3rd-quarter GDP is a prime example.

The U.S. economy is supposedly now growing at a robust 3.5% annual rate. Wall Street is reporting “record profits” (and paying record bonuses). Yet the state of New York is desperately trying to close a $3 BILLION budget-gap – which has materialized over the same quarter where both Wall Street and the broader U.S. economy are supposedly thriving. Apparently Wall Street's fantasy "profits" are producing only fantasy tax revenues for the state of New York.

This entire Ponzi-scheme economy continues plunging toward collapse – and formal default on its massive, unpayable debts. Total public and private debt in the U.S. is now approximately $60 trillion, and this completely excludes the roughly $70 trillion in additional “unfunded liabilities” (for the federal government, alone). However, don't expect to hear the truth about this from the U.S. propaganda-machine.

The U.S. junk bond default rate rose to 11.3 percent in October from 10.8 percent in September as corporate America's credit quality worsened despite positive economic news, Standard & Poor's said on Tuesday. Eleven bond issuers defaulted in October, bringing the year-to-date total to 175, S&P said in a statement.

A global credit crisis and the worst recession since the 1930s have already triggered six of the 10 largest bankruptcies on record, including the failures of General Motors in June and CIT Group on Sunday. Numerous government lifelines, including near-zero interest rates, are beginning to relieve default pressures as the economy revives, however. S&P last month slashed its forecast for the default rate, saying a thawing of the bond markets after last year's credit crisis is helping more companies survive.

The agency expects defaults to fall to 6.9 percent by September 2010, compared with an earlier forecast of a rise to 13.9 percent by August 2010. A 6.9 percent rate would still be above the long-term average rate of 4.3 percent between 1981 and 2008, however. S&P's previous peak junk bond default rate was 12.7 percent in July 1991, based on records dating back to 1981.

Just call it a month in which the private-sector job market treaded water: It lost 203,000 jobs in October, following a revised 227,000 reduction in September, according to data compiled in the ADP National Employment Report. September's original loss estimate was 254,000. Economists surveyed by Bloomberg News had expected private employers to cut 200,000 jobs in October. Separately, job-placement firm Challenger, Gray & Christmas said job cut announcements by U.S. employers fell to 55,679 in October, 16 percent lower than in September, CNMoney.com reported Wednesday.

ADP noted that the 203,000 private payroll cutback was the seventh straight monthly decline. Nevertheless, ADP added, "despite recent indications that overall economic activity is stabilizing, employment, which usually trails overall economic activity, is likely to decline for at least a few more months."

The job loss totals in October by business size were: 53,000 (large), 75,000 (medium), and 75,000 (small). Further, the services sector -- formerly a U.S. strength during the recent economic expansion -- lost 65,000 jobs in October. The goods-producing sector slashed 117,000 jobs and manufacturing shed 65,000 positions. The construction sector eliminated 51,000 jobs, its 33rd consecutive monthly decline, and brought total construction jobs lost since the January 2007 peak to 1.7 million.

Investors should monitor monthly job reports because job creation is positively correlated with corporate revenue and earning gains. And as corporate earnings go, so goes the U.S. stock market.

Job creation also is the key to consumption, which contributes greatly to U.S. GDP. However, given a decade of overconsumption and stagnant incomes in many job classifications, few economists expect spending patterns to return to the home equity/refinance-distorted, cash-flush years of the housing bubble. Nevertheless, many economists do expect both consumer spending and business investment to trend slightly higher in the quarters ahead.

Economic Analysis: Basically, the ADP October report on private-sector employment came in about as expected. Still, the optimist would see the continuing downtrend in job layoffs, which ADP noted. One of the ironies of the U.S. economy is that as it becomes more productive per employee, it takes fewer and fewer employees to perform the same tasks. This has the effect of reducing job gains and lengthening the recovery time to full employment. And that makes the task of policymakers and executives more difficult.

Even so, they must remain focused on job creation: The U.S. economy needs to create 150,000 to 200,000 jobs every month to lower unemployment. Also, investors should keep in mind that the more-telling job statistic, containing both private- and public-sector job data, is the U.S. Labor Department's monthly nonfarm payroll report, and the October data will be released Friday, Nov. 6 at 8:30 a.m. EST. It's expected to show a 175,000-job decline in October after a 263,000 loss in September, according to a Bloomberg News survey of economists.

Ambac Financial Group Inc. swung to a third-quarter profit thanks to large mark-to-market gains on credit derivatives, which had cost the bond insurer billions in losses a year earlier. Shares surged 27% premarket to $1.41. The stock, which has tripled from an all-time low in March, remained down 15% for the year through Tuesday. A foray into insuring mortgage-backed securities, which soured along with the housing market and home loans, combined with weak consumer sentiment and economic contraction sent the bond-insurance industry into a tailspin.

But the housing market has shown signs of stabilization and Ambac has been terminating some contracts with counterparties to reduce risk exposure. Ambac, the nation's No. 2 bond insurer behind MBIA Inc. (MBIA), posted a profit of $2.19 billion, or $7.58 a share, compared to a year-earlier loss of $2.43 billion, or $8.45 a share. The latest results included $2.13 billion of mark-to-market gains on credit derivatives and $303 million in gains from reinsurance cancellations. The prior year had $2.71 billion in derivative losses.

More Americans filed bankruptcy in October than in any month since changes to U.S. bankruptcy laws in 2005 as unemployment and falling home prices prevented consumers from paying their debts. The number of individuals filing bankruptcy rose 25 percent to about 131,200 from a year earlier, according to data compiled from court records by Oklahoma City-based Jupiter ESources LLC. The 1.2 million bankruptcies filed through October have already surpassed last year’s total of 1.1 million.

Businesses also continued to struggle to pay creditors; corporate bankruptcies climbed about 30 percent from October 2008, according to Jupiter. Chapter 11 bankruptcies, where a company attempts to reorganize rather than liquidate, rose the most in four months to 1,327 in October, according to Jupiter.

"Despite the recovery, several sectors remain in crisis," Kurt M. Carlson, a bankruptcy lawyer at Chicago-based Much Shelist Denenberg Ament & Rubenstein P.C., said in an e-mail. "The real estate markets haven’t improved. Vacancy rates continue to climb. Those in manufacturing are cutting costs." The American Bankruptcy Institute estimates personal filings will reach 1.4 million by the end of the year. That would still be less the record 2.1 million bankruptcies in 2005, when 630,000 Americans filed in the two weeks before bankruptcy law revisions made it more difficult discharge debt.

Commercial bankruptcies among the nation's more than 25 million small businesses increased by 44% from the third quarter of 2008 to the third quarter of 2009, according to Equifax Inc., which analyzes its comprehensive small business database for the on-going study. Comparing the month of September 2008 to September 2009 shows an increase of 27 percent. There were 9361 bankruptcy filings in September 2009 throughout the U.S., up from 7386 a year ago, according to the data.

California remains the most negatively affected state with eight MSA's (metropolitan statistical areas) among the 15 areas with the most commercial bankruptcy filings during September 2009. Los Angeles, Riverside/San Bernardino and Sacramento metropolitan areas continued to lead the nation in small-business bankruptcy filings as they did at the end of the second quarter. The other MSA's with the most bankruptcy filings during the month include:

--Denver-Aurora, CO --Santa Ana-Anaheim-Irvine, CA --San Diego-Carlsbad CA --Dallas-Plano-Irving, TX --Portland-Vancouver-Beaverton, OR-WA --California (excluding MSA's within the state) --Oakland-Fremont-Hayward, CA --Oregon (excluding MSA's within the state) --Chicago-Naperville-Joliet, IL --Houston-Sugar Land-Baytown, TX --San Jose-Sunnyvale-Santa Clara CA --Atlanta-Sandy Springs-Marietta, GA"Economic pain is continuing for small businesses across the country. We're still seeing hefty increases in the number of bankruptcies in a lot of major metro areas." said Dr. Reza Barazesh head of North American research for Equifax's Commercial Information Solutions division.

"However, the 69 percent drop and 49 percent decline in bankruptcies in Charlotte and New York-White Plains respectively, and a 44 percent drop in Atlanta between the second and third quarters indicates that the East Coast may be experiencing an earlier recovery from the recession than the West Coast." Charlotte - number four in June - dropped out of the top 15 entirely to 39th; Atlanta dropped from fifth to 15th; and New York - White Plains dropped from eighth to 24th.

Equally consistent with this east/west difference over the same period, the 11th, 12th and 13th MSAs with the greatest number of bankruptcies at the end of the second quarter of 2009 -- Santa Ana-Anaheim, Denver and San Diego -- increased in rank to 5th, 4th, and 6th by the end of the third quarter. Santa Ana-Anaheim increased three percent, Denver was up 13 percent and San Diego increased four percent.

For its research, Equifax reviewed and analyzed small business data for the month of September, the most recent month for which complete data is available, and compared it with results from September 2008. Equifax defines a small business as a commercial entity of less than 100 employees.

In the theory wars, which are as much wars over policy choices, two very bad kinds of theories are driving out good theories. Keynesian economics, which had been nearly forgotten inside the macro field, has found new voices from outside. They take the position that fiscal "stimulus" of all kinds is effective against slumps of all causes. Their strategy is to defeat their only popular rivals, the neoclassicals, by deriding their view that the employment downturn involves a contraction of the labour supply.

Neoclassical equilibrium theory, which some macroeconomists had grown sceptical of, has also found new practitioners. They take the position that, aside from bad policy moves, recessions, even "great" ones, are caused by random market events and corrected by market adjustments. Demand stimulus is of no use, since there is no systematic shortage of demand. These spokesmen show little knowledge of the several theoretical perspectives in macroeconomics over the past 100 years. The "Keynesians" seem not to have studied Keynes and the neoclassicals misread or do not read Hayek. No wonder fallacies abound.

The fallacy of the "Keynesians" is their premise that all slumps, all of the time, are entirely the result of "co-ordination problems" – mis-expectations causing a deficiency of demand. Having modelled the effects of expectations decades ago, I know they have consequences. I agree that companies appeared to underestimate the cutbacks and price cuts of competitors on the way down. That excessive optimism signalled deficient demand for goods and labour. So any stimulus then may have had a Keynesian effect. By now, though, such optimism has surely been wrung out of the system. To pump up consumer or government demand would force interest rates up and asset prices down, possibly by enough to destroy more jobs than are created.

The fallacy of the neoclassicals is their tenet that total employment, though hit by shocks, can be said always to be heading back to some normal level. In this view, employment is impervious to shifts in any particular demand. If told that consumers are broke, they say that markets will respond by lowering interest rates until investment has filled the gap. If told that business investment looks weak and will not be getting the help of another housing boom, they say that a real exchange rate depreciation will fill the gap with an increase of net exports. They do not understand that interest rates cannot fall much in an open economy and that a weaker currency has contractionary effects on output supply that could spoil the expansion coming from the effects on export and import demands.

These fallacies lull analysts into the false sense that, one way or another, a full recovery lies ahead – thanks to government spending or to self-correcting market forces. As I see it, the poor state of balance sheets in households, banks and many companies augurs a "structural slump" of long duration. Employment will recover, quickly or slowly, only as far as investment demand will carry it. It is highly uncertain whether government spending on infrastructure would help, after taking into account the employment effects of the higher tax rates to pay for it.

The most profound fallacy is the newfangled idea that misalignment of incentives in banks caused the housing bubble – a bubble that, when it burst, shook the economy to its foundations. All can agree that increased lending and building ran into the awkward fact that costs increase when production is stepped up. On that account, prices sought a higher level. But that analysis does not capture the steep four-year climb in housing prices, which rose by more than 60 per cent.

To account for so large an increase, we have to recognise that expectations played a role. Speculators appear to have expected that housing prices would go sky-high, so prices took off and then went on climbing in anticipation that those high prices were getting closer. The banks, seeing the houses offered as collateral were worth more and more, responded by supplying an increasing flow of mortgage loans.

From this viewpoint, speculation drove the crisis. Misaligned incentives were not sufficient to do it – and not necessary either. Bubbles long predate bonuses. The crisis could have happened with a 1950s financial sector. The lesson the crisis teaches, though it is not yet grasped, is that there is no magic in the market: the expectations underlying asset prices cannot be "rational" relative to some known and agreed model since there is no such model.

The gravest error of the phony debate between two non-starters is that their superficial and mechanical character – the clockwork of the neoclassical system and the hydraulics of the Keynesian one – operate to distract policymakers from asking basic questions about the dynamism of the US and UK economies. Economics has paid a terrible price for its dalliances with the Keynesian and neoclassical theories. Now policymakers are being misled by the siren call of these same, hopelessly inadequate views.

The writer, winner of the 2006 Nobel prize in economics, is director of the Center on Capitalism and Society at Columbia University

It's the lack of monetary enforcement that will likely save Europe from overspending. European Central Bank President Jean-Claude Trichet has proven throughout this financial crisis that he is his own man when it comes to navigating the euro-land banking system through the deflation and debt deleveraging storm. He has proven to be an excellent communicator, consensus builder, and a maverick among the world’s central bankers. To his credit, and much to the benefit of the 16-nation euro region, his policy positions of eschewing massive fiscal stimulus and rejecting excessive quantitative easing (QE) have proven that Trichet is no slave to fashion.

Many have pointed out that among the world’s prominent central bankers, he saw the looming financial meltdown and voiced his concerns while many others touted the new and wonderful world of financial engineering. Trichet was most concerned by the complexity and opaqueness of debt products that were beginning to dominate finance. On October 12, 2005, the Federal Reserve Chairman Alan Greenspan gave a speech to the National Italian American Foundation, and the following quotes reveal the en vogue thinking of the day: "The new instruments of risk dispersal have enabled the largest and most sophisticated banks, in their credit-granting role, to divest themselves of much credit risk by passing it to institutions with far less leverage…These increasingly complex financial instruments have contributed to the development of a far more flexible, efficient, and hence resilient financial system than the one that existed just a quarter-century ago."

The following month, in Basel, Switzerland, Trichet was quoted, "Perhaps there is an underestimation of risks by financial markets at the present juncture." Clearly, Trichet was unwilling to follow the siren call of the newly-engineered ‘Money for Nothing’ that clogged the balance sheets of banks, hedge funds and insurance companies on both sides of the Atlantic. As the financial meltdown began in 2007 and the Fed fell over itself in a rush to slash interest rates, Trichet and the ECB bucked the easy monetary policy trend and held rates firm through July 2008. In the U.S soon came TARP, TALF, an alphabet soup of bailouts, special lending facilities and asset purchases, and then a massive fiscal stimulus package. By the summer of 2009 the Fed had committed more than 12% of U.S. GDP to asset purchases under the guise of QE - all a desperate attempt to keep banks liquid and asset values artificially high. The UK soon followed, also committing more than 12% of annual GDP to its own QE program. Jean-Claude Trichet, on the other hand, was unwilling to provide funds for even 1% of aggregate GDP for the covered bond purchase program.

The European Union contains 27 member states, only 16 of which belong to the euro area, and the ECB cannot force any member state to undertake fiscal policy. They also have disparate needs: Spain, Greece, Iceland and much of the eastern bloc need capital infusions, while Germany, France and the UK think that such burdens are unfairly weighted. Hence, we see the International Monetary Fund playing the role of the ECB where direct cash infusion is required. In the end, it is the lack of monetary enforcement that will likely save Europe from overspending and committing hundreds of billions of euros in a vain attempt to prop up deflating asset values.

In the U.S., it would take a generation of above-average growth (combined with confiscatory taxation) to eliminate the projected deficits, given the recent actions of our central bankers and legislators. Japan tried stimulus in the nineties (to no avail), and the U.S. and the UK are playing the same game now. Jean-Claude Trichet, ever cautious, was recently quoted, "What is very important for a central bank is not to succumb to fashion… What we try to do is to take decisions, including when needed, bold decision that are designed…to preserve…monetary stability. We think we have reasonably struck the balance between those two considerations." (Bloomberg) Given Europe's lack of debt overload, I would agree. Trichet is no slave to fashion.

Since expressing ridicule skepticism about technical analysis a few months ago, we have been politely badgered by reader John Brims, who has been sending us charts and murmuring about wedges.

We will confess that we have not been listening too carefully, because, well, because we think technical analysis is a bunch of bullsh**.

But John has been persistent, so we'll give him his chance to shine.

John says the chart below indicates that the world is about end. So hang on to your hat!

Henry, I am going to give up on you. As a non believer you are missing out. These 5 wedges have clearly shown the end of each rally and on each occasion have signaled further heavy falls. The fifth wedge which I have sent you several times has just broken to the downside and indicates extremely heavy falls are now in the pipeline.

(Let us at least go on record as saying that we're generally bearish, too, for reasons having nothing to do with wedges.)

Concerns are mounting that efforts by governments and central banks to stoke a recovery will create a nasty side effect: asset bubbles in real-estate, stock and currency markets, especially in Asia. The World Bank warned Tuesday that the sudden reappearance of billions of dollars in investment capital in East Asia is "raising concerns about asset price bubbles" in equity markets across Asia and in real estate in China, Hong Kong, Singapore and Vietnam. Also Tuesday, the International Monetary Fund cited "a risk" that surging Hong Kong asset prices are being driven by a flood of capital "divorced from fundamental forces of supply and demand."

Behind the trend are measures such as cutting interest rates and pumping money into the financial system, which have left parts of the world awash in cash and at risk of bubbles, or run-ups in asset prices beyond what economic fundamentals suggest are reasonable. Prices are surging across a host of markets. Gold, up about 44% this year, soared to a record high Tuesday. Copper is up about 50% in the past year. In the U.S., risky assets are rising rapidly in price: The risk spreads, or interest-rate premiums, on low-rated junk bonds have narrowed to about where they were in February 2008, before Bear Stearns and Lehman Brothers fell, according to Barclays Capital.

Policy makers from Beijing to London, seared by the fallout from burst housing and credit bubbles, are searching for ways to head off new ones. How to handle a bubble "is one of the big two or three unanswered questions at the end of this crisis," says Adair Turner, chairman of the U.K.'s Financial Services Authority. Bank of Korea Governor Lee Seong-tae hinted last month he would raise interest rates, if necessary, to prevent Seoul's housing market from lurching out of control.

"This is the beginning of another big and excessive run-up in asset prices," said Simon Johnson, a former IMF chief economist. The symptoms of a frenzy are most evident in Asia and the Pacific, where economies are recovering most quickly. In Hong Kong, high-end real-estate prices are soaring. A luxury flat in the tony Midlevels district is expected to sell for US$55.6 million, or $9,200 a square foot, said developer Henderson Land Development Co. Elsewhere, a bidder at a city-run auction to operate food stands at February's Lunar New Year celebration recently paid a record US$63,225 for the right to occupy a 400-square-foot stall to sell fish balls and other snacks. Prices in the auction of 180 stalls were up 33% from 2008.

Over the summer, a Singapore condominium developer raised prices 5% the day before units went on sale. After dozens of would-be buyers lined up on a steamy night, the developer -- a joint venture of Hong Leong Group and Japan's Mitsui Fudosan -- held a lottery for a chance to bid on the units. Singapore home prices rose 15.8% in the third quarter, the fastest rate in 28 years. Australian real-estate markets also have heated up. After a Melbourne property-research firm recently predicted that average home prices will double over the next 12 years, a news report in Australia's Herald Sun said: "The staggering prediction shows the importance of buying a home as soon as you can afford it because the longer buyers delay, the more chance there is that their dream will slip out of their reach."

The Australian dollar has jumped about 35% over the past 12 months as investors borrow in U.S. dollars to purchase Australian currency. The practice is propelling stock and bond markets faster than in the U.S. and Europe. Currency traders are betting that the Australian central bank, which raised interest rates by 0.25% on Tuesday, the second rise in two months, will continue tightening. Asian stock prices are shooting up, in part due to low interest rates in the U.S. Investors looking for higher yields are borrowing in U.S. dollars and then pouring that money "into countries that are growing more rapidly," said Stephen Cecchetti, chief economist at the Bank for International Settlements, the central banks' central bank, which warned early of the last asset bubble and is beginning to do so again. "That runs the risk of creating property and equity booms in those countries."

About $53 billion has gone into emerging-market stock funds this year, according to data collector EPFR Global. Through Monday's trading, the broad MSCI Barra Emerging Markets Index this year was up 60.7%. Brazil was up 100%, and Indonesia had gains of 102.7%. Over the same period, the Dow Jones Industrial Average was up 11.5%. Discerning a bubble is as difficult as preventing one. Rapidly rising prices aren't definitive proof. Stocks in Asian emerging markets currently trade at about two times book value, about average for the past 20 years, according to UBS. From 2004 to 2008, the price-to-book-value average was about three times. "This doesn't feel like a bubble," said Hugh Simon, chief executive of Hamon Investment Group, which manages Asia-investment funds. "There's too much skepticism" among investors.

To battle bubbles, policy makers are turning first to regulation. Singapore's authorities tightened mortgage requirements, ended real-estate stimulus policies and pledged to make more land available for development. South Korea regulators tightened real-estate lending requirements in seven districts around Seoul where prices have jumped. "Even those who say we should respond directly [and deflate bubbles] have no idea how to do it," said Laurence Meyer, a former Fed governor. "It is easy to take a philosophical position, but hard to become operational and practical about it."

Is this the time to worry about inflation? We are, after all, awash in money with stagnant output.

In the past year, the Federal Reserve has increased our monetary base by about 120 percent, more than double the previous highest annual increase over the past 50 years. The Fed has made huge loans to private lenders and bought over $1 trillion of mortgage securities and hundreds of billions of dollars of long-term treasury bonds. It has succeeded in lowering the federal funds rate below 1 percent—even, for most of the time, to less than half that. The goal, of course, is to force-feed money into the economy in the hope of sparking a recovery.

The mountain of reserves on bank balance sheets, which so scares the inflationary hawks, would normally encourage banks to lend and increase their profits. But while the Fed has been pumping money through the banks, little of it has entered the economic mainstream. Instead of boosting lending, the banks have just increased their reserves at the Fed by hundreds of billions of dollars.

The government may be borrowing more, but consumers and businesses are borrowing less. If anything, they are paying down their debts. Households will reduce their total debts by $200 billion this year, Forbes magazine projects, and banks and businesses by $2.3 trillion. Small-business lending will contract by at least $113 billion. Since the credit crisis began more than two years ago, credit available to consumers and the small-business sector—which employs half of the country's workforce—has contracted by trillions of dollars, mostly because of curtailment of credit card lines. The hope that new bank reserves would be available to prop up the faltering economy has not been fulfilled.

Inflation typically results from "too much money chasing too few goods." Today, too much supply is chasing too little demand. That, coupled with consumers' need to save money to rebuild their finances, raises the risk of deflation, not inflation. As workers compete for scarce jobs and companies underbid one another for sales, both wages and prices will remain under pressure. We began this crisis with household debt at its highest levels since the 1930s. Knowing that monthly mortgage payments don't shrink even if your paycheck does, families are trying to deleverage and work down what they fear is their excessive debt.

On top of that, households are suffering from substantial wealth losses tied to impaired equity portfolios and dropping home values. The combination of lower incomes and reduced wealth raises the likelihood that consumers will continue to boost their savings and pay down debt rather than spend more on consumption, which has put retail spending into one of its worst declines in decades. This is evidenced by retailers slashing inventories by record amounts, causing the percentage of capacity utilization in manufacturing to drop to the lowest reading in the 50-year history of the measure.

Demand growth would need to recover substantially to reverse the deflationary effects of low capacity utilization. For this, we would need a significant improvement in employment and hence spending. But the job market is even worse than the overall economy, and the prospect is that high levels of joblessness will persist beyond the end of the recession. Companies have cut the number of their employees and slashed other discretionary costs, such as advertising. This has significantly improved profit margins, even in the face of lower demand, but the higher profits are not coming from revenue growth but from lower costs, making it easier for companies to maintain or even cut prices rather than increase them.

Reduced spending by consumers and an extended high unemployment rate mean that we can look forward to a continuation of the output gap. This refers to the difference between the actual economic output and the most the economy could produce given the capital, know-how, and people available. That gap today is estimated to be between 8 and 10 percent, the largest on record. It makes for intense competition for scarce sales and jobs and results in continued downward pressure on prices.

It will take a long time to absorb the enormous slack of unused labor and production capacity created by the deepest recession since the 1930s—and it ain't really over yet. In the meantime, the labor market is showing a continuing decline in wages and in average hours worked per week (now down to 33 hours, the lowest in 60 years), suggesting it will be a long time before labor markets are strong enough to push up hourly wages and income.

Until employment grows enough to push wages, and income and production levels increase to more normal levels, the most pressing worry will be deflation, not inflation. This is evidenced by the financial markets. In 2007, according to Forbes.com, the Treasury Department issued $237 billion more in debt than it retired. This year, just through October, it has added a stunning $1.2 trillion to its obligations, or $4 billion a day. With such a dramatic increase in supply to sell, you would think that prices would fall and yields would rise. Instead, after approaching 4 percent in June, yields on the 10-year treasury note have fallen steadily.

Despite worries that the government's huge deficit will create inflation and cause interest rates to spike, the bond market is signaling that its focus is on the dismal economy and the contraction of private-sector debt.

This does not mean we can forget about the long-term projected accumulation of debts and deficits. They can pose a danger. They can reignite inflation, especially if the quirky, unpredictably volatile "animal spirits" of entrepreneurs begin to break through. Foreigners may also become apprehensive about their purchases of too many dollar-denominated debt instruments, since they fear that the most politically acceptable way for the United States to handle its growing debts to other countries is through inflation. So far, though, we have still been able to export T-bills (even if we can't export goods) to finance our fiscal deficits.

In any event, inflation is easier to put right than deflation. The Federal Reserve can suppress inflation by raising interest rates as high as required to squelch those animal spirits, and the Fed can do that very rapidly. But there is a limit to the Fed's ability to confront deflation, since it cannot cut nominal rates below zero in order to induce economic growth. Therefore, risking inflation is a better bet than erring on the side of deflation.

Above all, we must avoid a repetition of an adverse feedback loop that would run from the declining real economy into the financial sector. While banks are broadly stabilized, they have yet to begin to operate as adequate lenders to U.S. households and corporations. That is why premature monetary tightening could push our economy into an even deeper decline.

Of course, when the economy really turns, monetary authorities must have the will to reverse policy quickly, tightening instead of easing. It is not something politicians like doing. Hence, they have been prone to running up huge and long-term fiscal deficits—deficits that, at some point, risk the financial stability and economic strength of America.

We cannot afford to let political leaders fudge and muddle along. We must find a way to mandate the appointment of strongly independent budget monitors who would be charged with the obligation to pass public judgment on the fiscal condition of our nation, in both the short and long terms and program by program.

The Congressional Budget Office should be expanded to provide these cost and budget estimates, as it did for the healthcare debate. The CBO must be made even more independent and nonpartisan, with a regular obligation to make public its assessments. This is critical to prevent politicians from digging a bigger and bigger fiscal hole through deficit spending and the excessive accumulation of national debt in order to promote their re-election. That is the real danger emerging out of our present discontents.

So asked the New York Times this weekend in a 3,000 word article this weekend, that eventually came to the conclusion that a debt-for-equity swap was probably, sort of, the only answer to the bank’s problems.

However, the piece has drawn a furious response from Rochdale Research voluble banking analyst Richard X. Bove, who reckons the authors, Andrew Martin and Gretchen Morgenson, have completely missed the point: which is that Citi is already dead and the body is being dismembered.

What the writer does not understand is that Citigroup is already dead. It will not rise from its death experience. A small portion of what was Citigroup, called Citicorp, will arise as a very successful company. But Citicorp is not Citigroup and Citicorp is not too big to fail.

The New York Times article is typical of the backward looking pieces being written about this company. Plus, it is flawed by a lack of understanding as to what Citigroup was in the 1920s (I suggest the writers read Citibank by Harold van B. Cleveland and Thomas Huertas, or The Banker’s Life by George S. Moore, or Wriston by Philip Zweig if they really want to understand this period); a misreading of how powerful the company was (or really was not in the past decade when it was far from being number one across the board and was closer to being a minor factor in many businesses and places around the world) and what the company is now. Plus, Alan Greenspan did not save the banking industry in 1990 by cutting interest rates. This cliché is ridiculous.

Now, in order to understand where Citi is going, Bove adds, it is necessary to understand why it no longer exists.

In September 2007, this company had $2.4 trillion in assets. Two years later it had $1.9 trillion or $400 billion less. However, the company has been broken into two entities and the one that is to survive, Citicorp, only has $1.0 trillion in assets. Thus, the ongoing part of this company only has approximately 40% of what the old Citigroup controlled.Citigroup has sold huge portions of its company in the past two years and has huge portions left to be sold .

Bove goes on to list these businesses, but we won’t because it is just too long. However, his point is the Citi is now an experiment on how to liquidate a company that poses (or posed) a systemic risk.

Investors need to understand what the New York Times and others do not. Citigroup failed and is being liquidated. Citicorp is not too big to fail and is actually quite attractive. Once the liquidation of Citigroup is complete, investors will be left with a very attractive banking company with powerful niche positions. It should be owned..

Hence the prolific Bove has a “buy” rating and a $6.50 target price on Citi.

Back when gold began its first sharp ascent over $1000 per troy ounce in September, we at FT Alphaville wondered what, if anything, the move might have had to do with the IMF’s jumbo issue of $250bn worth of special drawing rights.

The International Monetary Fund has sold 200 tonnes of gold to the Reserve Bank of India, nearly half the total approved by the IMF executive board in September. Proceeds from the off-market sale amounted to .7 billion ($7.4bn), or 4.2 billion of special drawing rights, or SDR, a combination of currencies, the IMF said. Payment is expected to be in major currencies that make up the SDR. IMF managing director Dominique Strauss-Kahn welcomed the transaction as an important step toward achieving the objectives of the gold sales program, namely “to help put the fund’s finances on a sound long-term footing and enable us to step up much-needed concessional lending to the poorest countries”.

Which appears to explain gold’s recent unusual and simultaneous moves against the four main currencies that comprise the SDR basket: the dollar, the yen, sterling and the euro.

We speculate India might indeed be the first country to use its SDRs for currencies to buy IMF gold, although that’s not to say other reserves haven’t had the same idea with gold generally.

The new economic statistics put growth at a healthy 3.5% for the third quarter. We should be dancing in the streets. No one is, because no one has any faith in these numbers. Waves of money are sloshing through the system, creating a false rising tide that lifts all boats for the moment. The tide will recede. The boats aren't rising, they're bobbing, and will settle. No one believes the bad time is over. No one thinks we're entering a new age of abundance. No one thinks it will ever be the same as before 2008. Economists, statisticians, forecasters and market specialists will argue about what the new numbers mean, but no one believes them, either. Among the things swept away in 2008 was public confidence in the experts. The experts missed the crash. They'll miss the meaning of this moment, too.

The biggest threat to America right now is not government spending, huge deficits, foreign ownership of our debt, world terrorism, two wars, potential epidemics or nuts with nukes. The biggest long-term threat is that people are becoming and have become disheartened, that this condition is reaching critical mass, and that it afflicts most broadly and deeply those members of the American leadership class who are not in Washington, most especially those in business.

It is a story in two parts. The first: "They do not think they can make it better." I talked this week with a guy from Big Pharma, which we used to call "the drug companies" until we decided that didn't sound menacing enough. He is middle-aged, works in a significant position, and our conversation turned to the last great recession, in the late mid- to late 1970s and early '80s. We talked about how, in terms of numbers, that recession was in some ways worse than the one we're experiencing now. Interest rates were over 20%, and inflation and unemployment hit double digits.

America was in what might be called a functional depression, yet there was still a prevalent feeling of hope. Here's why. Everyone thought they could figure a way through. We knew we could find a path through the mess. In 1982 there were people saying, "If only we get rid of this guy Reagan, we can make it better!" Others said, "If we follow Reagan, he'll squeeze out inflation and lower taxes and we'll be America again, we'll be acting like Americans again." Everyone had a path through.

Now they don't. The most sophisticated Americans, experienced in how the country works on the ground, can't figure a way out. Have you heard, "If only we follow Obama and the Democrats, it will all get better"? Or, "If only we follow the Republicans, they'll make it all work again"? I bet you haven't, or not much. This is historic. This is something new in modern political history, and I'm not sure we're fully noticing it. Americans are starting to think the problems we are facing cannot be solved.

Part of the reason is that the problems—debt, spending, war—seem too big. But a larger part is that our government, from the White House through Congress and so many state and local governments, seems to be demonstrating every day that they cannot make things better. They are not offering a new path, they are only offering old paths—spend more, regulate more, tax more in an attempt to make us more healthy locally and nationally. And in the long term everyone—well, not those in government, but most everyone else—seems to know that won't work. It's not a way out. It's not a path through.

And so the disheartenedness of the leadership class, of those in business, of those who have something. This week the New York Post carried a report that 1.5 million people had left high-tax New York state between 2000 and 2008, more than a million of them from even higher-tax New York City. They took their tax dollars with them—in 2006 alone more than $4 billion. You know what New York, both state and city, will do to make up for the lost money. They'll raise taxes.

I talked with an executive this week with what we still call "the insurance companies" and will no doubt soon be calling Big Insura. (Take it away, Democratic National Committee.) He was thoughtful, reflective about the big picture. He talked about all the new proposed regulations on the industry. Rep. Barney Frank had just said on some cable show that the Democrats of the White House and Congress "are trying on every front to increase the role of government in the regulatory area." The executive said of Washington: "They don't understand that people can just stop, get out. I have friends and colleagues who've said to me 'I'm done.'" He spoke of his own increasing tax burden and said, "They don't understand that if they start to tax me so that I'm paying 60%, 55%, I'll stop."

He felt government doesn't understand that business in America is run by people, by human beings. Mr. Frank must believe America is populated by high-achieving robots who will obey whatever command he and his friends issue. But of course they're human, and they can become disheartened. They can pack it in, go elsewhere, quit what used to be called the rat race and might as well be called that again since the government seems to think they're all rats. (That would be you, Chamber of Commerce.)***And here is the second part of the story. While Americans feel increasingly disheartened, their leaders evince a mindless . . . one almost calls it optimism, but it is not that. It is a curious thing that those who feel most mistily affectionate toward America, and most protective toward it, are the most aware of its vulnerabilities, the most aware that it can be harmed. They don't see it as all-powerful, impregnable, unharmable. The loving have a sense of its limits.

When I see those in government, both locally and in Washington, spend and tax and come up each day with new ways to spend and tax—health care, cap and trade, etc.—I think: Why aren't they worried about the impact of what they're doing? Why do they think America is so strong it can take endless abuse?

I think I know part of the answer. It is that they've never seen things go dark. They came of age during the great abundance, circa 1980-2008 (or 1950-2008, take your pick), and they don't have the habit of worry. They talk about their "concerns"—they're big on that word. But they're not really concerned. They think America is the goose that lays the golden egg. Why not? She laid it in their laps. She laid it in grandpa's lap. They don't feel anxious, because they never had anything to be anxious about. They grew up in an America surrounded by phrases—"strongest nation in the world," "indispensable nation," "unipolar power," "highest standard of living"—and are not bright enough, or serious enough, to imagine that they can damage that, hurt it, even fatally.

We are governed at all levels by America's luckiest children, sons and daughters of the abundance, and they call themselves optimists but they're not optimists—they're unimaginative. They don't have faith, they've just never been foreclosed on. They are stupid and they are callous, and they don't mind it when people become disheartened. They don't even notice.

Prime Minister Gordon Brown hailed a doubling of the bailout for the two largest British banks, saying the move will reduce the liabilities shouldered by taxpayers by as much as 300 billion pounds ($488 billion). The Treasury will inject 31.2 billion pounds into Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc, allowing the two institutions to scale back their dependence on government guarantees for their most toxic assets. It also pledged up to 8 billion pounds for Edinburgh-based RBS to use "in exceptional circumstances." To fund the injection, the Treasury may have to borrow an extra 13 billion pounds.

"We have been able to reduce the liability we have from insurance of some of the major banks in this country, and there is going to be a benefit to the taxpayer as a result of that," Brown said at a press conference in London today. "At the end of the day, banks will be paying money to the British public, not the other way round." Brown’s Labour government is seeking to claim credit for saving the financial system after the credit crisis triggered the first run on a U.K. institution in more than a century and forced the Treasury to take control of four banks. Last year, the government rescued RBS and Lloyds with 37 billion pounds of public money.

With an election no more than seven months away, Brown’s popularity has dwindled as the costs of the recession and the bank bailout put the public finances under their biggest strain since World War II. The Conservative opposition said today’s measures may not help the economy.

"Let’s not miss the elephant in the room," said George Osborne, the Conservative lawmaker who speaks on finance. "The government is having to put another 39.2 billion pounds of taxpayer’s money into the banks, a bigger bailout than the original bailout last autumn. There is no guarantee that it will get credit flowing." The Liberal Democrats said today’s move would allow the banks to wiggle out of agreements to increase lending to consumers and businesses, an assertion the Treasury denied. Ministers said RBS and Lloyds will be prevented from paying discretionary cash bonuses this year to staff earning more than 39,000 pounds.

"The bonus agreements in both banks are a sham" and government claims that the bailout will save taxpayer money are "simply not true, said Vince Cable, a Liberal Democrat lawmaker who speaks on finance. "Until we can split up the banks in a meaningful way, so that taxpayers will not be forced to underwrite casino activities, all banks should pay a premium for the explicit support they receive."

Chancellor of the Exchequer Alistair Darling said today’s agreements will spur competition in the banking industry by forcing both Lloyds and RBS to sell parts of their businesses accounting for about 10 percent of British retail banking. That, he said, will open the door to new banks to start up in the U.K. "I would like to see perhaps three new entrants coming onto the high street," Darling said on BBC Radio 4’s "Today" program. "We do need to be rigorous about competition. If you don’t you do find it hard to get credit and you do find it hard to get loans at the right price."

Under the terms of the agreement with RBS, the bank now will bear the costs of the first 60 billion pounds of any losses instead of 42 billion pounds it agreed to earlier this year. In exchange, the Treasury will allow RBS to take advantage of tax allowances worth up to 11 billion pounds that the bank originally had agreed to surrender to win Treasury protection. The Treasury will inject 25.5 billion pounds of capital into RBS, increasing its stake to 84.4 percent from 70.3 percent. It will maintain its 43 percent holding in Lloyds by paying 5.7 billion pounds for new shares being offered to existing stockholders.

Those purchases of shares will, all else being equal, add 13 billion pounds to the 220.8 billion pounds of central government cash borrowing forecast in the April budget, the Treasury said. There will be no impact on public-sector net borrowing, the government’s preferred measure, a spokesman said. Lloyds will escape the Treasury program to insure 260 billion pounds of its assets, reducing a fee of more than 15 billion pounds to 2.5 billion pounds. RBS’s insured assets will drop by 43 billion pounds to 282 billion pounds. By reducing the size of the Treasury’s umbrella protecting the two banks, taxpayers will shoulder smaller risks. So far, Darling has extended about 1.4 trillion pounds of support for the economy and financial institutions.

In April, the Treasury estimated potential losses on its support for the financial system at between 20 billion pounds and 50 billion pounds, or as much as 3.5 percent of national income. Today, Darling said he’d reduce that estimate in his pre-budget report, due within six weeks. "What we’ve got here is better structured, a better deal for the taxpayer," Darling said on BBC radio. "That does represent a major step forward."

Dutch banks worked for years to penetrate markets abroad. Now that ABN Amro has been split in three and ING is withdrawing to Europe, little remains of their efforts. For a long time the Dutch banks were among the world’s best, but now they are withdrawing to Europe and primarily their home market, involuntarily or otherwise.

In 2005 ING had a balance sheet total of 1,159 billion euros, just 100 billion less than French BNP Paribas. And ABN Amro was almost as large as Deutsche Bank. The two could measure up to the top banks in Europe. Last year Deutsche Bank and BNP grew to over 2,000 billion euros, but ABN Amro fell to 666 billion. Once ING has split itself up, the financial group will be only a shadow of its former self. ING and ABN Amro have fallen to the level of the 1990s, the period in which both major banks were created from mergers. It is a development that will affect the strategy for the coming years and which will also have consequences within the national borders. The competition will most likely become even tougher and the slimmed down institutions can become prey to takeovers once the recession is over.

"The scope of the financial sector gave the Netherlands a great deal of influence and prestige in the world, certainly considering the country’s size. There is good reason we are among the G20," says Sjoerd van Keulen, former CEO of SNS Reaal bank and since May chairman of the Holland Financial Centre, a foundation to boost the financial sector. "The scope of the financial sector is still relatively large, but our prestige has taken a blow." Not long ago there was talk of the creation of one Dutch financial superpower. At the beginning of 2007 the merger of ABN Amro and ING was in the works. It would have become a giant that could measure up to the largest banks in the world. But the merger failed and an exposure of the sector followed.

At the end of 2007 ABN Amro, the national financial flagship, was bought up by a consortium and split into three parts. The bank, which had a presence in 53 countries and followed Dutch businesses to every part of the globe, fell into foreign hands. It was the credit crisis that ensured that the Dutch part of the bank just barely survived, thanks to nationalisation by the government. When ABN Amro dropped out of the game, ING was still a player. The bank-insurer was one of the leading players in the world in its segment. That changed last week. ING found itself in major difficulties as a result of the credit crisis and required a bailout from the state not once, but twice, to stay afloat. Under pressure from the European Commission, which had to give permission for the government support to the bank, ING announced a drastic reorganisation. It will split into two parts in the coming years and sell internet bank ING Direct in the US, following orders from Brussels. ING will divest 45 percent of its balance sheet total. ING will no longer be a worldwide group, but a mid-sized European bank with its centre of gravity in the saturated markets of the Benelux.

The third largest Dutch bank, Rabobank, has emerged relatively unscathed from the crisis so far. The bank is the largest in the Netherlands, but is a relatively small player internationally, certainly in comparison to the ‘old’ ING and ABN Amro. The question is whether the situation is so bad that the financial sector, which accounts for just under 7 percent of the gross domestic product, is losing ground internationally. "Should you want a Dutch bank to have large subsidiaries in the US or Brazil? I don’t think so," says economist Jaap Koelewijn, professor of finance at Nyenrode. "Local competitors are often much larger and often do better."

The new reality for the international position will also have consequences for the domestic market. The fact that these two (former) major powers are becoming more dependent on the home market for their profits will have consequences for the other players. Competition is expected to increase in a market where rivalry is intense in all market segments and the margins are low. Added to this is the fact that new foreign players are appearing who have a great deal riding on securing a solid position. Deutsche Bank will soon buy ABN Amro subsidiary HBU. With the takeover of the thirteen regional consultancy offices and two offices in major cities the Germans will secure the position they so desire on the market for small and medium-sized enterprise.

And soon the Dutch banks will probably be able to expect yet another competitor. ING will create a new bank from the parts of the old company. This entity will have a market share of 6 percent on the mortgage market and about 500,000 saving accounts. The buyer will most likely be a foreign player. Sjoerd van Keulen would bet on it being a French company. "BNP has traditionally had a great interest in the Benelux, as has Crédit Agricole." So while the merger of Fortis Bank Nederland and ABN Amro and the bankruptcy of DSB create less competition, strong newcomers will also be joining the market.

The margins will probably only become smaller, which could in fact be reason for foreign players to stay away from the Dutch market, says Van Keulen. But even if the home country offers little growth, foreign banks will probably venture a try nonetheless. "If the economy picks up again, I see the Dutch institutions growing once again as well," says Van Keulen. "ING is still strong in Eastern Europe and Asia and ABN Amro will also rebuild its network for commercial banking in order to facilitate the business sector." Van Keulen says that in future, banks must not try to do everything for everyone, but should choose specific niches. That is something that banks should look into, the former CEO says. "The Netherlands is very good in payment transactions. And in financing sustainability projects, such as biomass and wind energy."

ABN Amro does indeed plan to combine the offices that it has acquired as part of the integration with Fortis. ABN Amro can merge the international network that it still has in the division for wealthy private individuals with Fortis’ foreign offices that support the business sector. This involves about 30 foreign offices, which could form the basis for ABN Amro’s new commercial bank for the Dutch business sector abroad. Does this threaten a return to the unbridled expansion of the 1990s once the recession dies down? "I do not see any large takeovers or a return to large-scale private banking on foreign markets," says Van Keulen. Koelewijn says the end of the economic malaise could bring about the round of European consolidations that experts have been forecasting for years. Dutch banks were long seen as buyers. But their new smaller size makes them more likely prey.

Keeping up appearances is about to get harder for China's top banks, and the country's banking regulator. Things still look good on the surface. Third quarter profits rose year-to-year at China's top four listed banks, with Bank of China, China Construction Bank and Industrial & Commercial Bank of China each coincidentally reporting a 19% gain. This despite a narrowing of net interest margins, by between 60 and 80 basis points, since the government reduced the spread between deposit and lending rates a year ago. A massive expansion in bank loans has more than compensated for that inbuilt profit reduction.

What such robust growth masks, though, are cracks appearing in the banks' capital positions. This puts the China Banking Regulatory Commission, which plays an important role in guiding how much banks can lend each year, in a tricky position as the year comes to a close. Should it unleash another bank-lending splurge next year to help support the economy and bank profits, or should regulators slow things down to focus on protecting bank balance sheets?

Capital adequacy ratios remain comfortably above the regulator's 8% baseline, but they're in decline. At Bank of China, which has seen the fastest lending growth of the big four this year, capital adequacy had fallen to 11.63% at the end of September, from 13.43% at the start of 2009. Meanwhile, a risk already flagged by the CBRC is the banks' reliance on subordinated debt -- considered a low-quality source of capital -- for funding. Take Bank of China's long-term subordinated bonds out of its capital adequacy calculation, for example, and its ratio would be about 1 percentage point lower. Subordinated debt is potentially a systemic risk, too, with at least half the issuance held by other Chinese banks.

A concern that's accompanied the rise in lending is that large parts of the new loans made this year will eventually run into trouble. Here too, things appear tidier than they may actually be: Chinese banks hold high levels of so-called special mention loans, which are often rolled over or extended even when they've been non-performing for some time.

Aware of these frailties, but not wanting to be too strict, the CBRC has recently wavered. Having this summer proposed tough rules over the classification of subordinated debt, it watered down the proposals last month. Because banks front-load much of the year's lending, a slowdown in lending rates at the big banks is naturally occurring. Their share of new lending dropped to just 21% in September from around 70% in the first half of 2009. For the CBRC, the truly delicate decision is going to be whether to see to it that this slowdown continues through the new year.

Russia has warned the European Union that a new gas conflict is brewing with Ukraine, reviving memories of a previous dispute that led to fuel shortages across a swath of Central and Western Europe. Moscow is pointing the finger at internal politics in Kiev and is complaining about disputes over bills owed by Ukraine. The risk of a winter row over payments for gas by Ukraine was raised by Vladimir Putin, the Russian Prime Minister, in a telephone conversation on Sunday with Fredrik Reinfeldt, his Swedish counterpart who is representing the EU.

Naftogaz, Ukraine’s main gas importer, must pay $500 million (£305 million) to Gazprom, the Russian energy group, by the weekend for gas consumed last month. The former Soviet republic survives on a lifefline of loans from the International Monetary Fund (IMF) and has struggled to pay for gas imported from Russia. Yesterday, Mr Putin urged the EU to lend Ukraine money to buy gas and accused it of being ungenerous. "Let the Europeans throw in a lousy billion," he said. "Why have they gotten so stingy down there? Let them get something out of their pockets."

The Russian Prime Minister’s warning of a gas conflict relates to mounting tension in Ukraine between Yulia Tymoshenko, the country’s Prime Minister, and President Yuschenko. Both are candidates in presidential elections due to be held in January and Russia hopes that the winner will be more sympathetic to Moscow than the incumbent. According to Mr Putin, Mr Yuschenko is blocking the transfer of funds needed to pay for gas. Mr Putin insists that Ukraine has the funds to pay its gas bills but the money is being withheld. "According to the International Monetary Fund, Ukraine does have the money. Furthermore, the IMF thinks paying for Russian gas out of Ukraine’s foreign reserves is possible," Mr Putin said.

A fifth of Europe’s gas arrives in Europe through pipelines that traverse Ukraine. In January 2006, arguments over unpaid gas bills led to Gazprom cutting supplies to Ukraine, which in turn led to severe shortages felt across Central Europe and in Germany, Italy and France. However, the EU has been reluctant to step into the breach and lend money to Ukraine to pay for gas. The recession is increasing the financial pressure on Gazprom to secure payment, but it is also likely to stay the utility’s hand in any new winter threat to cut off supplies. Demand for gas has fallen sharply in Europe amid the contraction in industrial activity and Gazprom will be reluctant to take any action that might reduce shipments to European customers.

Europe’s big utilities, including E.ON, of Germany, Eni, of Italy, and GDF-Suez, of France, are clamouring for price renegotiations after a fall of almost two thirds in the spot price of natural gas. Plentiful supplies of liquefied natural gas (LNG) are undercutting Russia’s pipeline gas markets. To avoid Ukraine, Gazprom is building two new pipelines, including Nordstream, linking Russia and Germany under the Baltic Sea, and South Stream, under the Black Sea from Russia to the Balkans.

144 comments:

1) Today was an ascending triangle and the markets will "thrust" up on open tomorrow, hit resistance and selloff in a nasty wave [iii] down. This would be like the September 2nd 2008 kickoff when the market opened high day after Labor Day and then sold like a banshee all day long

2) Today or shortly tomorrow was an ending diagonal triangle. This is almost like option 1) above. They both imply practically the same thing. Nuance. However this option supports a big unfilled (point of recognition) gap down and selloff.

3) We get a very bullish day and the markets shoot higher with the inverse Head and Shoulder target in the backs of everyone's minds. This would be about 1090 on the SPX. Follow through then on Monday to hit the target. I don't like this scenario because of a) resistance b) DOW would probably make a new high if the SPX went to 1090. c) my counts would be stretched to the limit and I'd have to make a bunch of new charts. d) up volume ratio would probably be too much to support a Minute [ii] count.

4) My counts are all wrong and back to the drawing boards this weekend.

So basically we have a high chance of a big sell off tomorrow...maybe :)

Many of the November 2 thread's comments re. Unions were a bit much...

Like the unions are the cause of all of society's ills.

I worked for the railroads and GM, both bastions of unionization. While there were slothing workers, let's face it -- it was ALWAYS question of poor management which ran those companies into the ground.

If you provide poor service or poor products, it doesn't matter whether you are unionized or not what will happen in the long run.

I think the key point re. Unions and the visceral hate some quarters have for them is a rejection of any sort of collective action on a problem -- whether it is economic justice, health care, education or what ever.

If there is no collective action, TPTB call all the shorts. Look at the past 40 years.

If you're looking to find a presidential role model for what you are about to face, you need to go back much further in history. You have to look at Abraham Lincoln for guidance. Your most daunting task is not turning the economy around. You will be remembered in history as the man who either did or did not save the Republic.

Stern words there and here I thought Ilargi was of sunny disposition :P

You will need to demand that ALL companies in the US that can't survive on their own two legs, will be allowed and made to fail. You cannot save some taxpayers’ jobs at the expanse of all other taxpayers. The diseased parts of the economy will have to be cut out.

On Nov 4th - There ain't no cureOnce again the focus is on Obama,

If he wishes to prove himself to be a true leader, his mission will be to soothe the pain, to stem the bleeding, to minimize the suffering of the herd, and most of all to stop the lying and cheating that has come to define the nation, at the latest ever since Greenspan took over the Fed in 1987.

...

There will be enormous pressure on the new president to follow the path set by the IMF and the World Bank, whose solution has always been to live off the misery of people in far away corners of the planet. We can but hope that Obama has the guts to shut off access to that path. But I’m not sure of that by any means: it has been the American modus operandi for far too many years.

Does anyone else want a stiff drink?

On Nov 5th - BittersweetnessIlargi was happy about Obama winning but sad about loss of gay rights. One year later the O'man just turned out to be a GS puppet :(

I want to talk about the economy, Mr. President. I've seen who your economic advisers are, and that fills me not with pride but with a frozen chill. You know, Albert Einstein said that "The significant problems we have cannot be solved at the same level of thinking with which we created them." That is a very wise observation. Albert was as good a thinker as he was a physicist.

...

You need to withdraw all government support for Detroit, and let Ford and GM fail if they can't stand upright on their own. Same for all financial institutions. No more bail-outs, they just cut the trust level ever lower.

Two years ago on TOD canada, we just had an environmental round up by Stoneleigh

The dominant theme today is water, notably the effects of too much or too little of it. Climate change is predicted to impact on water supplies severely in many places, through both diminished rainfall and increased evaporation, while in other areas rainfall may increase to dangerous levels. Food supplies are also likely to be impacted. This has significant implications for the stability of the human societies affected, which has been recognized as a security issue for wider areas.

On the Canadian energy scene, resource royalties, pipeline construction and a reduction in natural gas drilling stand out. Oil and gas exploration continues in the Orphan Basin in the Newfoundland and Labrador deep offshore, and Alberta research institutes get excited about biodiesel from canola.

My apologies for not making my point clearer. I wasn't saying that Obama's being a Harvard-trained lawyer, Chicago-bred politician, and friend of Goldman Sachs precluded him from becoming comparable to the individuals you and others have mentioned ... only that it is very premature to make such comparisons and allusions. For example, there is a real good chance (Ilargi's posted advice notwithstanding) that the Goldman boyz will be running the public purse in Obama's administration just like they did in Bush's. We'll know a lot more about Obama's character shortly that we don't know now...keep your eye on his appointments...that will be the first sign of whether we can look forward to sage and prophet or to business as usual--but with eloquence this time instead of buffoonery.

“Paul's bill is probably most useful as an example of what happens to any proposal that goes through the Capitol Hill wringer. Everything comes out in 2-D, without any depth perception, assuring that nothing is done to hurt the interests of the capital that owns the 3-D machine and keeps it lubricated.

... if Geithner's forced out, his place will be filled by the next drone. People talk about Paul Volcker and Elizabeth Warren for the post, but they would be powerless sitting ducks in a bankers pond. ”

Only a dictator would be able to impose his will.Obama’s visions and plans ... dead in the water

To even begin to solve the problem and stop the bleeding, you would have to fire the entire government in all its branches. And then start all over with people you can guarantee have never received a penny from the ruling classes.

Ilargi - "What makes the econo-political system in the US (and other countries) such a failure in the eyes of the average citizen is that money can buy political power..."

True now... true a long time ago... true all these years.

Elections are mostly a farce, the two parties are like, NASCAR twins (hello Kunstler;-)) a Ford and a Chevy... same IC engine, same road, same destination, same everything except a few of the trappings!

We're in a box, and it sure as hell isn't an honest ballot box!

The only possible way out, other than some sort of violent combustion (which is not really a way out) is for a third party to somehow get a foothold. No, I am not holding my breath for that one.

Votes still carry the political day in America; it’s after election day when things inevitably get squirrelly and the special interests start exerting their influence, or should I say, the D and R become generic substitues for one another. Honestly, this topic is a broken record. And yet it is a topic unresolved. How many more times will the electorate witness the determined proclamations of campaign pledges become the shriveled compromises of governance? I say as long as that useful idiot, otherwise known as the partisan apologist, continues to take the WWF bait and believe in “Victory” on election night.

We live in the world of Bounderby now; a world of media interpellation that cons the dupes into believing that,they too, can become the statistical anomaly that confirms the by-the-bootstrap mantra. Americans don’t like to contemplate the statistical certainty of a very pedestrian existence; instead, we ignore “facts” and fantasize about future lives of luxury under the spell of media and entertainment glorifications. It is this state of stupefied fantasy, and a promise of a greater day in the economic sun, that impels the talk-radio foot soldiers to demonize unions and undercut social and economic safety nets for the working-class in America.

It only took a generation or two before Americans turned their backs on the very unions (just like Ronald Reagan did ) that marginalized economic stratification in the U.S. Believing themselves on the cusp of “making it big,” they agreed to turn the lights out on the middle-class...after all,it was "Morning in America" once again.

But I do have to hand it to them…The "Bullies of Humilty” did their work well.

Our societal trajectory can't be altered at this point. So what's the point of discussing it.

As soon as the government hits the debt ceiling, the center will crumble, chaos will reign for a period, and the military will step-in to fill the vacuum. There is absolutely nothing unique or remarkable about this course of events.

The only issue that seems interesting to me is whether or not individuals intend to fall in line and obey orders once their individual liberties are stripped away. Will you dare to fight the power, or will you put on your uniform and march to the beat of the drum.

What is the game plan for the government and the financial elites going forward is I guess what I keep wondering here? How deep does the rabbit hole go?

They have shown they can engineer an impressive rally. And they have obviously engaged in a coordinated campaign to make us feel as if we are coming out of the woods.....do they themselves believe this? Are they just crossing their fingers and hoping? Or are they aware of the coming maelstrom? Opinions?

And if they do know that the "S" is about to HTF why are they not trying to prepare the people for what is coming? If we are about to fall into the abyss you would think that there would be at least some attempt to recalibrate the expectations of 300 million Americans (not to mention the ROW) instead of constantly blowing borrowed sunshine up our collective arses.

If you were one of the elite that was driving the global economy and holding all the political power and you knew that we were headed for a financial crack up boom that would precede shortages of both food and fuel what would you do?

Keep in mind that if you let everyone know what you know there would be instant pandemonium.

If it were the Wolf in this position of informational and political advantage I would loot and pillage like no tomorrow in the hopes of securing me and my families place among the economic and physical survivors while continually pushing the green shoot meme in order to buy as much time as possible.

hmmmmm.....

again I ask....how deep does this rabbit hole go?

Are we already to the point where it is every man for himself (life and death struggle) and the PTB just have not told us yet?

Or are they waiting for the curtain to fall suddenly so that they can engage in history's biggest and baddest shock and awe campaign?

Why are the ones with all the power acting as if they don't give a rat’s ass about our future?

It's as if they know we just don't have one in which the rules of the past will apply. And I am talking about more than just an economic Depression......

And that is some truly scary shit. We are being treated like the (expendable) patsies that we are.

Ilargi,What is funny is a I am a huge Libertarian, but last election I was very encouraged by Obama's inclusion of Paul Volcker, and as Obama and McCain were identical candidates, I went with Obama in the hope that he really listened to Volcker.

Well color me unsurprised, but any vote today is a waste because any side is with the money, as you very well lay out tonite. I am not sure there is any remedy.

The rip offs are so obvious, the baloney (remember baloney is just a big hot dog) are out in the open an exposed, but yet nobody cares.

I think we may have missed a window for change last March and now everyone is too busy telling the story that it is 2007 again to listen.

The moment "that" starts here it will be time to find a quiet place and pull it in after yourself.

Either way ,by quiet collapse,or rebellion,The republics days are numbered.

You might see the attempt in the east to "maintain order"but in the west,the first time you see .mil shoot civilian types,look for a hole to hide in 'cause there is way way too many nutcakes with weapons here.Yes,I know the troops have "stuff"that boggles the mind.But I also know we are a nation of those types who fled repression in other lands.That "rebellion gene"is a American as apple pie. Think of the south...rising again to the tune of dixie

And all those others who fled,the protestant puritan,to the Hugonauts to the Scot-Irish...

And think of the right wing propaganda-machine in place now painting O-man as the next thing to Che'..."Hes going to steal your social security to give abortions to Mexicans!!!"

Sweet mother of Christ,This country is on a hair trigger now,with everyone wondering just how the hell they can get out of the mess their in be it too little money for too many bills...too many toys and no money...and no work...NO WORK.

Its becoming more plain for all to see that O-man is a tool of the powers that put him their.He is not even trying to hid it now.It sickens me to see those on the left still try and carry his water.

When it breaks "bad"everyone will see it ,just like that creep down in Argentina...who was "a man of the people"...and betrayed them so badly he became a national disgrace[and joke]

Having spent as much time and effort to seize power unto themselves,I am sure those of generational wealth will never give it up...the Waltons and the rest Like running things with politicians ready to tickle them with tax breaks any old time...It would take a dictator,and one born to poverty with a cruel heart to bring justice back to America.

Its strange though,having watched the destruction of the middle class,I cant help but wonder how soon the stone will turn a bit more and grind up those a bit higher on the scale.

Predatory capitalism eats its children...and as the saying goes"There can be only one"

All the white collar boys thought they were part of the kool kids...until they weren't.

Its going to keep eating its way UP the food chain now when all those boys & girls who thought just owning rentals....commercial real estate ,the "rentier" class,republicans all,now get their turn at being skinned alive by [their freinds at] the bank

The howls will be loud and pain-filled....

Put in lots more popcorn in your preps.The show is going to get real good soon...

The Propaganda Model for social control only works when you keep everyone fat and happy.

Once that's no longer possible (and we're getting pretty close) you need a cattle prod to keep people in line.

Most of the leadership is well aware of this fact. They don't want to go there publicly, but little hints of this awareness squeak through every now and then.

For example, witness the language deployed by Mr. Globalization himself, Tom Friedman, lamenting the failure of the House to pass Paulson's TARP legislation on the 1st try last year:-------------------

"I always said to myself: Our government is so broken that it can only work in response to a huge crisis. But now we’ve had a huge crisis, and the system still doesn’t seem to work. Our leaders, Republicans and Democrats, have gotten so out of practice of working together that even in the face of this system-threatening meltdown they could not agree on a rescue package, as if they lived on Mars and were just visiting us for the week, with no stake in the outcome. The story cannot end here. If it does, assume the fetal position. "----------------------

The whole shooting match would have to come down -- _EVERYTHING_ -- before any real hope for change or the like hits the table.

You cannot trade on the "outside" anymore. You have to be an "inside trader" (and, hence, a criminal) to make any real degree of money anymore, because the moves made which make the money are now so far behind the scenes, it's as if the whole shooting match was just one big government manipulation all along.

The biggest problem with that is the same question I would ask almost anyone who believes in what would end up the same kind of thing: How do you maintain any degree of societal order in the interim while a new situation is brought to the forefront?

How do you prevent Mad Max, or is Mad Max non-preventable now? (My guess: The latter.)

Cruise reflection:The majority of those on the cruise were retired, well off, middle class americans. I did not get the impression that they were traveling on their credit cards.They were aware that the abyss had been avoided by bailing out the banks.It was impossible to get away from the financial news since we got a daily news sheet and it generated casual discussion.Except for one or two, they did not demonstrate that they were aware of what we know at TAE.It’s as if they couldn’t care... As if they were expecting their money to outlast their remaining years on this earth. Markets go up markets go down and they had enough to enjoy their remaining years, no matter what the market was doing and they were intending to enjoy their remaining years. I expect that the majority will have died within the next 5 years.

Re: Do the elites know where we're headed and how bad things will get?

It would be worth your time to watch this interview between Charlie Rose and Jon Mack, the Chairman and CEO of Morgan Stanley. The interview was recorded in January or February of 2009 and it involved an hour long discussion of the financial crisis.

[Jon Mack]: (shakes his head) I don't want to go there (laughs, hesitates). Well the worst scenario is that we continue this decline, unemployment goes to double digits, and we could end up in a very long, deep recession

There is a saying among some that we (the United States) are screwed, but they (everyone else) are screwed worse. What are your thoughts on this? I am not sure if I agree since the US is the most indebted country on the planet, perhaps in history. Debt = screwed the worst. Your thoughts?

I hesitate to submit this posting since this site basically features economic/political discussion; however, once in a while the discussion turns to self-sufficiency so I thought I would post these two YouTube clips featuring the magnificent Maria Martinez, the magical potter who hailed from New Mexico.

Truly, her work is a miracle, and if you watch the second clip you will see her firing process--directly from the earth.

Whilst you recognize the generosity of US, your readers, you express the concern that "much more funding" is needed. As I am performing to the "dime a day" criteria, I am a little perplexed about TAE's financial situation.

Perhaps a TARGET for funding would assist. It is not uncommon for successfull websites and blogs to state a target funding goal and to provide a graphic that demonstrates the level of achivement for that goal (like a fundraising thermometer for exmple).

You are doing "the good work" to quote Fallout 3's character "3 Dogs". Personally I retract from all "head against brick wall" type behaviour. Thankfully, there are those that don't mind a touch of concussion on a regular basis.

What is it that you indend to do, how are you going to do it, and how much finance do you need.

With Great Respect, (Stoneleigh as well. Dear God, I envy the Chosen, even if I no longer remember what a sexy blue halloween leg through a split frock is supposed to evoke....)

The year is 1996, the place:yahoo finance.A cry goes up: Comp USA has a website, now we'll all be rich!Some months pass, the stock languishes: the CEO is now an idiot, has no communication skills,does not know how to groom a quarterly report,...

The year is 2005, the place: Palatka Florida.Sign on the dotted line and flip that house it's easy enough.Rip out those oak cabinets and replace them with cherry. Put a granite slab on the countertop, soon you'll be rich...

The common man was in on this up to his ears.It was'nt only the banks or greedy CEOS there were also greedy and corrupt:

IMO his work is very useful as far as it goes. His concept of the financial world is the most accurate I've come across, and he's been writing about these concepts since I was still in elementary school. I just set his work in a larger context that incorporates resource limits in all their myriad manifestations.

I've read Conquer the Crash and found it full of sensible advice, and solid enough in presenting the argument for technical analysis, which we can take or leave as we see fit. But I've also read some rather unsettling anecdotes about some of Prechter's more outre advice:

suyog on March 21, 2007I am embarrassed to admit that I was a subscriber to the Elliot Wave newsletter back in 2002 and 2003. Back then Prechter was claiming that the ups and downs in Michael Jordans career and the popularity of Donald Trump's books was an indicator of popular sentiment. Hence you could time the stock market (I am not making this up!!) by following MJ's career and DT's book publishing schedule. And at least one issue of the newsletter claimed that the stock market was influenced by sun spots and hence you could predict it by tracking the number of sun spots. And then he has also claimed that you could predict the onset of the bear market by tracking the popularity of slasher/violent/horror films. So the mother of all bear markets was supposed to start when "Kill Bill" became a popular movie 3 years ago.

Commentary on the Oil Drum, 2007. This sounds like the ramblings of a real crackpot, or scheister given that he's charging advice for these gems. So if Jordan blows his knee out the markets will tank? Or soar?

Crankdom and wisdom needn't necessarily be mutually exclusive of course, cf Newton's extensive research into alchemy. Which dominates Prechter's output? Or did his analysis of MJ's dunk ratio truly correlate with the DJIA - or is the above a misrepresentation of his intent?

Stoneleigh, a little OT, but I wanted to follow-up one more time with a question regarding your seminal interview from last week. (I understand you generated some impressive page views - I hope I did my small part in spreading the word.)

Assuming we had a global currency, how effective would a world-wide central bank be in re-inflating the money supply to the extent that it would effectively reset major pricing functions?

This is a long winded way of asking what is the difference between default and devaluation, if in the end the result is the same: savers/creditors lose their investments and debtors start over with a clean slate?

Now, I well understand the main point that any single fiat currency which attempted to do so would simply suffer a run on its currency as holders mad a mad dash into alternatives. (As we have recently seen with gold.)

But isn't this to suggest that fiat currencies are vulnerable only as long as alternative means of exchange/stores of value exist? Would this still be necessarily true if we are all locked into a closed system?

I think it's an important point to make, because it gets to the heart of what we may be seeing. That is, if all G20 currencies are pegged to the $USD in some sort of reciprocal agreement, isn't the dollar then in effect acting as a global currency?

Once a global currency was in place, would it not then be an important component in directing & managing world-wide economic activity in an almost paternalistic manner? I mean, why leave it to individuals/groups that prey on rivalries, regional differences, etc that merely act to disturb the peace?

It seems your entire thesis rests on the assumption that while no single central bank, like the Fed, can combat world-wide capital flows, it doesn't appear to address the efficacy of a global bank. I'm beginning to think that we are much closer to this type of system than we may be aware, which would help explain why the crash may not be coming.

We may already be living in a managed matrix and not even be aware of our condition.

My 2¢'s worth, eyeballing the charts, it looks like we've had a series of drunken m's all going uphill since March. (except the DAX which now slopes downhill) There's a bounce with about a one-month period, and a sort of quarterly bigger-bounce. I suppose the chartists have precise metrics for such things.

So maybe we are forming another quarterly bounce this week? With another low around Dec. 1?

Regarding the recent comments on gambling, you are essentially gambling if you breathe. Farming? You're a gambler. I am mostly long the dollar, but also sitting in a leaky bucket with a buzzard just now.

As for predicting the stock market, I've rarely made anything. A little bit on ultrashorts last year, but I got in late. My timing is terrible, even for things like PMs. Last August I exited positions on Central Fund and a goldmine the FSN guys were promoting ... had I hung onto them a bit longer I could have broken even or slightly better.

But it's really hard to control one's emotions when one has a big wad of money riding on a prediction like that. As Stoneleigh said, it always seems wrong -- if you do what seems right you are just swimming with the big school of minnows. And if you leave the safety of that school, you have no guarantee of heading in the right direction.

Being a little cash strapped, I was going to hold off for a few months before contributing the the fund drive. But today's post prompted me to make a contribution, though small.

As has been stated by others, the problem goes beyond just the elite. It does permeate a great number within our society. Many people are both greedy and stupid. We may, indeed, be on a trajectory that can not be changed.

Yet if ever there is to be positive change within our society, this post is one of the messages that must be heard. Our society needs to fundamentally change its view on the role of central government.

My view may depart slightly from Ilargi's here, but here are my thoughts. The key seems to be to limit the centralization of power generally. Clearly, we do need systems of governance to mediate conflict, control crime and even regulate market behavior. But those systems need not rule over hundreds of millions of people. Once a political system reaches that level of influence, it is not a matter of choosing the right people who will not be bought and paid for. Moneyed interests will make sure those people are in power.

The federal government needs to shrink.

Too few people even perceive the fundamental problems in our political systems to begin to consider solutions. So even if I found that your ideas for solutions (assuming you could change enough minds to matter) differed from mine, I'm still glad to support you for casting such clear light on the issues.

In the long game, unemployment is only a short-term reference point. That is, it may only be a lagging indicator before the next bubble activity is successfully engaged so that we once again experience full employment.

If a composite global fiat currency can be managed to first flatten the pre-existing housing bubble (by executing an orderly default on individual component currencies currently experiencing excess reserves), AND then be directed towards blowing an entirely new bubble (say, health care, cap 'n trade, etc), then UE really is nothing more than a lagging indicator.

Of course, it means the world economy is being directed by those which seek to siphon off and profit disportionately to the amount of effort expended, but hey, that's life with the squid.

Not paying your mortgage frees up $1500/mo to spend on Crimmas presents.Christmas is getting a government bailout.

BOGUS Birth/Death Model added EIGHTY-SIX THOUSAND PHANTOM JOBS!!!!!

I am shocked the Gov't let the #'s go above 10%!!

Average duration of unemployment 29.6 weeks-all time high.Hours worked 33- another lowadjusted last month's #- + 30K - Did GS know that ?

You knew this was going to be bad when Obama wasn't out there yesterday touting his job on the economy like he has done in previous months.

WHEN IS THIS MADNESS GOING TO STOP GEITNER SHOULD BE FIRED

Given that Timmy cheated on his taxes and got found out and still got the job, I suspect that Timmy is gonna have to be caught running dog fights to lose his job over at the Tsy.

Me thinks some more stimulus is in order.

The rumors should start flying around 2:00 about meetings in Washington concerning an immediate STIMULUS 2.0. Why not go them one step further and just declare a "Day of Jubilee". That would double the stock market in about a week.

Short squeezes continue.09:45 am : Weighed down by a disappointing jobs report, stocks started the session in negative territory, but they have since made a strong, upward move to positive territory.Amid the upturn, shares of retailers are garnering particular support. As a group, retailers are up 1.5%. That's giving a lift to the consumer discretionary sector, which is up a solid 0.6%.

TPTB would, of course, love a world currency, but with the breakdown of globalization and the coming dog-eat-dog currency competitions, I don't think we are going to see it. I think they got the timing wrong and blew their plan to turn the entire globe into a one world feudal state. Instead they have set up the world for 50,000 baronies.

In a similar vein, why did the IMF sell the central bank of India 200 tons of gold this week? And how did the IMF accrue so much gold in the first place?

Assuming we had a global currency, how effective would a world-wide central bank be in re-inflating the money supply to the extent that it would effectively reset major pricing functions?

If we were to see the major globalizing trend continue, I think we would indeed be headed in the direction of a single currency (or at least one with a much broader reach than we have now). It would require trust, in that many parties would be surrendering a significant amount of sovereignty.

I would argue that globalization has already begun to go into reverse, and that we will see larger entities or spheres of control breaking down, rather than smaller ones continuing to aggregate. Trust is one of the first casualties of large scale contractions. They lead instead to beggar-thy-neighbour policies that are incompatible with globalization.

I can't see those who are undoubtedly pushing for greater globalized financial control managing to achieve anything in the time they have left before it all comes apart at the seams.

Repeating the comments sections of other sites in this comment section. There's something weird in that, like a house of mirrors or something. Not that I have anything against recycling per sé.

"Dow still over 10,000. " ¡We don't need no stinkeeen jobs! ""

Indeed, we don't. As long as the financial system has unlimited access to future tax revenues, who cares what you earn today?

Thing is, that’s not the whole story.

Many people think this can go on for ages, if not forever. But as Sen. Maria Cantwell says in one of the videos above (in this case the first one, please do see them all if you possibly can, they're all more than worth your while, seriously!), even in Las Vegas, when someone goes to the blackjack table, both the house and the players have to have capital behind their bets.

And that’s precisely what will terminate this game, and soon. In gambling terms (and that’s the best metaphor by far here), you either need to show your cash before you can sit at the table, or you will be made to show your cash or your hand at some point during the game. It all comes down to trust. The US government and its banking affiliates and/or puppeteers operate under the assumption that they will never be called on to show their hand (they think they’re the house), but that won’t last much longer. Not with unemployment numbers such as these. They back up their bets with future tax revenues, but unemployed people generate no tax revenues.

U6 is at 17.5%. Shadowstats' SGS Alternate is over 22%. That seriously hurts the credibility of what backs up US wagers.

Option 1 will be: Show us your hand.

Option 2: If you don’t show us your hand, we walk away from the table, but only after you pay up.

If you don't pay, you can't play. And if you can't play, you can't win.

This week I saw the flashy pundits on CNBC? at lunch time claiming that it was good that

prices are kept down by slave labor [in eg china]

[and the female pundit guffawed incredulously that there is no slave labor in china when the guest brought it up. they were all ganging up on the guest who was stating that not everything that lowers prices is good for american economy. when he gave example "slavery lowers prices for your VCR but that's not good", they loudly protested and contradicted him that yes slavery was good if it lowered their vcr price.

evil consciousless bastards herding public opinion toward slavery justification , just like the torture and war invasion liars / proponents on tv.

i rarely ever watch tv. probably why i still have some ethical reasoning left.

What comes first, de-globalization or the breakdown of global currency standards? But why must these occur? Isn't globalization and a coordinated currency regime just a managed feedback loop that can operate in either a positive or negative fashion?

So why let it go negative? Why must de-globalization necessarily occur? Regional rivalries & distrust that are too strong to overcome? What about the (supposed) benefits of full employment and economic activity that provide incentives for cooperation?

Why does de-globalization have to occur if a centralized supra-bank can manage the orderly suppression (extinguishing claims of composite currencies aka default) of the existing bubble, while setting parameters for new bubble activity?

It appears your entire thesis rests on psychology of the herd - one I grant is a powerful and compelling rationale. But it still depends on panic - a rushing for the exits. But what if we live in a closed system where there isn't any escape? What if the PTB have created a system were we must hang together to avoid assuredly hanging separately?

I hope that I am not appearing to either advocate or suggest that such a system exists. But at the same time, we should always be looking for flaws in a theory. It's the only way to know there may be certain possibilities, no matter how remote, that would disprove an entire construct.

Your reply seems to concede that if the PTB were able to restore a positive global trade/currency feed-back loop, then an entire set of predictions regarding certain economic outcomes would be invalidated.

And if this is indeed a fatal flaw in your logic, then we know for a fact that this is where the PTB are placing all their resources. So our futures rest in either their success or failure.

Which gets to my original point, why bother looking at short-term activity like UE? All we really need to monitor is whether the PTB can pull-off restoring the old regime. If so, back to bubble times; if not, then get ready for Mad Max.

I am embarrassed to admit that I was a subscriber to the Elliot Wave newsletter back in 2002 and 2003. Back then Prechter was claiming that the ups and downs in Michael Jordans career and the popularity of Donald Trump's books was an indicator of popular sentiment. Hence you could time the stock market (I am not making this up!!) by following MJ's career and DT's book publishing schedule.....And then he has also claimed that you could predict the onset of the bear market by tracking the popularity of slasher/violent/horror films.

Prechter does not say that these trends in popular culture drive the stock market. What he is saying is that changes in collective social mood drive both markets and popular culture trends. Markets respond more quickly as the time lag for acting on one's mood is very short (a few clicks or a phone call). That is why markets are leading indicators for many other trends with the same fundamental driver.

Essentially, Prechter is simply observing that optimistic/happy people express that mood in many ways. They listen to cheerful music, like to watch upbeat films with happy endings, appreciate beautiful art, wear bright colours (and show more skin in the process), vote for incumbents, start businesses (ie take risks), have children (since they are confident about the future of these children), appreciate the common humanity of people who are different etc etc.

Pessimistic/angry/fearful people act quite differently. They listen to angry and dischordant music (punk, grunge etc), they watch ever more violent horror films, they appreciate art that is deliberately ugly, they wear somber colours (and cover up), they vote to throw out incumbents, they become too risk averse to start businesses, they have fewer or no children, they come to see differences between people as being more significant than similarities, they lose trust in others and act accordingly, they find it harder to suppress violent impulses etc etc.

It's fairly easy to see how such constellations of behaviour can drive positive feedback spirals, as they generate self-fulfilling prophecies (albeit self-limiting ones). I suggest you read Bob Prechter's work on socionomics. You could start by watching History's Hidden Engine.

"Repeating the comments sections of other sites in this comment section. There's something weird in that, like a house of mirrors or something. Not that I have anything against recycling per sé."

Well, I did edit their the comment section for the most sarcastic, amusing, or interesting ones on the unemployment release topic. If I hadn't edited it, I would have just given it a heads up link. And I also figured, now that we are moderated, that if you objected, you could sit on it.

Thanks for your reply, Stoneleigh. I have considered buying Prechter's socionomics book if I can pick it up for a reasonable price.

Right off the bat I can think of a multitude of quite noteworthy movements in popular culture that seem wholly at odds with the sentiment of markets - the ascendancy of "grunge" music in the early 90s for instance. Was this the lagging trend for the '87 market crash or something? More likely I see it as endemic of the ever-widening wealth disparity in the US finding its outlet in ever nastier and more plebeian music; you could certainly gauge the mood of young people by its popularity, but damned if I can think of a way to turn this into an investment strategy. But I will keep hunting around for a copy of that book - and watch the video when I have the time.

I think what Wall Street requires to precipitate a collapse would be some extraordinarily good news. Perhaps the Second Coming, a $10 cure for all types of cancer, or a pill that gives men over 70 multiple orgasms would do it.

We always say the market is divorced from fundamentals; but it must be married to something. Perhaps the double-reverse reasoning was: good employment numbers = fed raising rates and strong dollars = unwind US$ carry trade = stocks tank; so perhaps there were large short positions built up in anticipation of better than expected payroll. When it didn't happen, and perhaps with GS et al. knowing the score and buying furiously at the open, the shorts rushed to cover.

The run-up didn't really hold, however. I watch a list of hot-money stocks and they are nearly all down today even with the indices green. The market is still nervous.

I think that only fools went short that didn't also go long to an extent. It's all too close to go all-in or all-out. That also points to a significant change in investing overall. There is very little trust or confidence left that holds anywhere beyond a 100 meter dash. It's not just nervousness, it really is paradise lost. Lots of money managers must sleep poorly, since they simply don't recognize the terrain they operate in.

And that's why I think it takes very little for them to pull out and go foe the dollar, as the only choice left available to them.

There is very little upside left, nobody sees S&P 1250, and tons of downside, since unemployment may well go to 12.5%. Little potential profit, an avalanche of potential losses. They're squeezing a dry lemon.

In the news footage about the Fort Hood shooting, what struck me was the details on that compound.

• It’s the biggest in the US, 52,000 (!) personnel. • For many soldiers, it’s the last base before going to Iraq or Afghanistan.• There are twice as many females as there are males. • The average age is 21. • Which means, because superiors are older, that the vast majority of "foot" soldiers are teenagers.

Can you even imagine the levels of loose and lewd hormones flying around? The infighting, the jealosuy, the gossip? Two teenage girls for every teenage boy? In the last stop before seeing battle, and potentially getting killed? Boys that are put in groups turn stupid, girls in groups turn mean.

That is worth a reality TV show, much as I despise the genre.

The average age of the combat soldier in WWII was 26. In Vietnam it was 19. (great clip). Is it even lower now?

I've always found military recruitment dishonest and disgusting, but nowadays in the USA it is particularly so. Military recruiters are in high schools almost every day, and in the county where I live they are even allowed to visit middle schools and distribute propaganda pamphlets in the cafeteria at lunch time. Recruiters are allowed to call students at home, invite them to eat out, and give them gifts. Schools in poorer neighborhoods and minority students are specifically targeted by military recruiters. Junior ROTC is in every high school in my county!!! Parents don't complain either. God and country, indeed!

Wages stagnated sometime in the 70's. And as the article states, no matter how many loans the FHA is willing to make, the payments still have to be made from the borrower's wages.

So would it be accurate to think that housing prices in the 70's, adjusted for inflation, would be the affordable level now? I don't know what the average 70's house price would be now, adjusted for inflation. I'm thinking it's less than the current median of something like $170k.

Also, in the 70's is when mothers started flooding into the work force, with housing prices quickly adjusting upward to take advantage of that 2-income ability to pay. This of course has been a hidden 'tax' on single-income households.

What cost $32500.00 in 1973 (average price of a home) would cost $155818.50 in 2008.

Also, if you were to buy exactly the same products in 2008 and 1973,they would cost you $32500 (2008 prices) and $6625 in 1973.

However, the average price of a home in 2008 was about $240,000 not $156k. So housing prices blew past inflation by 60% or so, but meanwhile inflation is kicking everyones butt in all other categories as well.

So your housing is 60% more expensive than it was 35 years ago, oh and by the way all other items cost 5x as much

http://www.census.gov/const/uspricemon.pdf

What cost $12,900 (Average Salary) in 1973 would cost $61847.96 in 2008 dollars. So the average salary in 2008 seems to have kept pace with the average Salary over the past 35 years you have 60% more expensive housing, and all other items seems to cost 5x more.

Hence the move to a Double Income lifestyle and the societal issues that have resulted from the latch key child.

@ Ilargi, I've been watching the Ft. Hood story and noting changes in " the script " since last night. Three shooters down to one. One dead shooter now alive.It is curious to me that on a base with 50,000 soldiers and the local police force it took a shootout lasting several hours to wing one shooter? Either the information we are getting is false or those soldiers need more training before being sent anywhere.Deeply sad to learn how young the soldiers are. Can't help thinking about the Wall St crowd raking in bonuses for bankrupting the nation, not going to war to protect the goose that lays those golden eggs for them. Very obscene that Wall St. got H1N1 vaccine, jumping the queue so to speak. Clear as a bell whose important to this administration and whose not.If I were a General I wouldn't be turning my back on any of my officers. If a Major accomplished such havoc what about other officers? If that is the truth that is. Not, possibly, a sleeper cell? Whoops, not supposed to mention sleeper cells are we.The US military must be very edgy right now not knowing who and where the enemy is.And if I lived in a US occupied country I'd be doubly edgy knowing now whose landing on their shores with a gun and PTSD .Poor kids being sent out in such rough shape.But hey, they are still dancing on Wall St. the music is still playing....

Markets are not rational and they are not driven by the news of the day. Their movements are endogenous. We did not take out the October 19th high today. Unless we do, I still regard that as the high for the rally. Even if that high is taken out, IMO the remaining upside will be very limited and not worth the risk of pursuing. Any upward moves at this point are cashing-out opportunities.

"The only way to stop the bleeding is to separate money and politics."

But politics is mainly a negotiative process by which law can be altered, law must partially define how money can move.

It would seem we need to separate moneyed interests and politicians, and reconfigure the connection between money and law, so far as that politicians and lawmakers should themselves desire to remain poor and powerless in equal measure.

What of the Fed's independence, its policy is already supposed to remain free and separated from politics, partisan politics, have you seen this, have you heard about this? Seeing how that worked out, you might want to politicize the setting of interest rates to the fullest extent of the publics monetary misconceptions.

Nelson, I decided I liked diagonally (in the 2 seconds I took to do so) but yours is undoubtedly more theoretically correct. Just playing (with words). I often think I don't get to do that nearly enough.

I like the analogy of shooting rapids in a canoe or kayak in a canyon. You can't end the ride prematurely; you're probably going to get bunged up or worse; but if you want to survive you, had better pay rapt attention, learn how to read the water both 3 meters ahead and 100 meters ahead; and work your butt off when the situation requires it.

I find this story hugely ironic because of flood of militarism and hyper-masculinity that America has been awash in during recent years.

It does not speak well of the military establishment that the individual who stopped the Ft. Hood shooter was:

1) diminutive2) a civilian3) a woman!!!

This story really puts the lie to the mass media propaganda that the Usaco military is filled with supermen trained to be elite killing machines.

I'd also like to point out that the Usaco military budget is a joke. As someone who works in the MI-complex I can tell you that 75 to 80% of each budget dollar is consumed by bureaucracy, redundancy, inefficiency, or outright criminality.

The remaining 20 to 25% of each dollar is what actually makes it into the equipment or the hands of the beleaguered people on the front lines.

My post is critical, but understand that always enjoy reading your posts regardless of what you discuss. You've got a flare for words and phrasing that is most unique.

That said......

I don't understand what you're trying to accomplish by raising issues about the political/economic system.

Do you really think it can be fixed? Stating the obvious, that the system is controlled by corporate money, doesn't take us very far toward a solution. Besides, the corruption at the core of the system has been known and openly acknowledged for at least a decade. Money buys you power. Ask anybody you see on the street if that's true. I doubt you'll find dissenters. You aren't breaking new ground here.

What do you propose? Call your senator? Start a protest?

Waste of time (IMO).

Protests will happen soon enough, once the public realizes the social-safety-net has been removed. At that point, we'll have chickens running around with their heads cut off arguing about this and that and this and that and accomplishing exactly nothing apart from looting stores and making a general mess of things.

The generals will step-in, and by and large, the silent majority will welcome them.

"el gallinazo said...I like the analogy of shooting rapids in a canoe or kayak in a canyon. You can't end the ride prematurely; you're probably going to get bunged up or worse; but if you want to survive you, had better pay rapt attention, learn how to read the water both 3 meters ahead and 100 meters ahead; and work your butt off when the situation requires it."

And all this from you of all creatures. Tsk, tsk. Try flapping your wings.

"Do you really think it can be fixed? Stating the obvious, that the system is controlled by corporate money, doesn't take us very far toward a solution. Besides, the corruption at the core of the system has been known and openly acknowledged for at least a decade. Money buys you power. Ask anybody you see on the street if that's true. I doubt you'll find dissenters. You aren't breaking new ground here."

If you and I are both right, we'll see no-one calling for either an audit of the Fed or the firing of the likes of Geithner.

Nobody there was armed...it was a processing center. 2/3 were female. Few would be battle-troops and fewer would be elite. Mostly it would be those who man the supply lines -- war is ever thus -- and who are the soft underbelly of any war machine.

What it says to me is that being armed is a very significant advantage, and acting purposefully provides advantage as well.

* TPTB at a glance:- Obama is a tool of TPTB- TPTB know TSWHTF- TPTB should help people recalibrate their expectations- Soon the TPTB will turn on their own; Some will become the powers that were- TPTB believe slave labor is good for America- TPTB don't know what real work is- TPTB would love a world currency- Unions are The Power That Ain't

* Firing the entire government would be a black swan event; Military will replace the government; US Military bases are orgies waiting to happen; If the military kills one civilian all heck will break loose; The country is on a hair trigger; Nothing can stop Mad Max; It's every man for himself; We are all patsies now

* Propaganda only works when people are fat and happy; Money can by fatness and happiness; Fat and happy people procreate more often; Cruise ships prove that some people are still fat and happy; Propaganda fails at TAE because TAEers are sometimes fat or happy but never both

* Elections are a farce; A third party or limiting centalized power would solve all our problems; Since nothing can be fixed we should spend our time emoting

* Todays questions:- How high can a pitchfork fly?- How deep is the rabbit hole ?- Why bother with politics? - Will we fall in line or fall on our swords? - How can house prices rise without wages? - Why is the BDI up?

* Some libertarians voted for Obama in hopes he would listen to Volcker; Window for change is now closed

* US is screwed but not as screwed as everyone else; We are too far down the wrong road; US protects pipe industry with tariffs

* Maria Martinez skills and pottery are stunning; One pot sells for $1K+ on EBay

* Sophists and morons aren't mutually exclusive; They sometimes marry and produce offspring that become economists

* Double digit unemployment will hurt; Maybe this plus health care will bring the crash we so dearly hope for

* We don't need no stinking jobs; No jobs = Easy Money = Chicks for free; A multi-orgasm pill would make Ilargi a bull; Without chips you can't bet

* Popular culture doesn't drive the markets; They are both driven by tree gnomes but the market responds faster; Tree gnomes like horrible news; Tree gnomes are not rational and can't do math

* Stock market is entering the Bermuda Triangle; Rally is well engineered; The market is not up in gold or Euros; Only inside traders can be successful; The market is divorced from fundamentals; The market got the house and the fundamentals got the kids

* Stuff costs more in dollars than it did in 1973; Posting stupid charts is stupid; How you feel is less important than how you smell

@lord.bacon...I am strangely relieved to know there is no political solution to this " predicament ". Otherwise I'd be doing what I've always done, campaign for a saviour, spend my precious,meager resources on political donations, waste time listening to speeches of hope and then experiencing the disappointment and shame that comes with being taken in by the con.Won't be doing any of that anymore and I'm in Canada. Now I am a virus undermining the corrupt process speaking to all and sundry about what is going down. As a retired person I see paying attention and passing on the news as my contribution to society, to those who are too burdened after a day's labour to inform themselves.I speak to bus drivers and cabbies, store clerks etc, the folks I encounter as I go about my daily living. They may not prepare themselves but at least when TSHF they won't be in complete shock. I have been surprised of late how many people are picking up on the stench saying, " Ya, I know."As Stoneleigh says we are waiting for momentum and IMO that applies to more than the market. It takes awhile for folks to realize their betters aren't.

"Also, in the 70's is when mothers started flooding into the work force, with housing prices quickly adjusting upward to take advantage of that 2-income ability to pay. This of course has been a hidden 'tax' on single-income households.

Not that old canard again!Stop blaming liberation of married women for rising property prices. Monetary policy is the cause of the housing booms.

A hidden tax is actually imposed on secondary earners/employed mothers, not single households.This is meticulously documented in the book Taxing Women by Edward J McCaffery.

gylangirl said..."Hence the move to a Double Income lifestyle and the societal issues that have resulted from the latch key child.

This is nuts!

Yes, very nutty argument on your part to [once again] blame married women's incomes for society's ills. "Double income lifestyle" must be the new chauvenist term for "keep em barefoot and pregnant". "

I did not mean it like that, I don't care if a man or a woman works, my point was what used to affordable on a single income 35 years ago, now needs two.. thats all. Kids with a parent home, well, I think thats a more desirable choice than both working.

CCPO - "At the end of the day, if there is no faith in the system, and how can there be?, then the system will fail.It really is that simple."

I think you are right on here CCPO, however, I witness faith in this ailing system everyday by people all around me.

The reason for this is lack of experience. It's been generations now (the 1930's) since most folks here in the states have experienced anything like extreme hardship or system failure.

We are like the Titanic boarders, stepping confidently along... blissfully faithful in those who are at the helm, and in the integrity of this famous vessel!

It's not about deductive (or inductive) logic, or reasonable evaluation. Most people cannot think out of the box, or entertain the notion that their perspective is, or could be, flawed. This abundant life is about the only thing most of us have ever knew, or our fathers and mothers and grand-s .

I don't see that second-income realities SHOULD be necessarily sexist. Obviously part of the second-income value was realized in larger homes and arguably better lifestyles for the children. My own children have had private education in part due to my wife's employment.

However, I think part of the reality is that second incomes became necessary to maintain the status quo, and just happened to go a ways beyond, which in turn contributed to the run-up in house prices. It also required an additional car for many, and the growth of the service industry.

All of this contributed nicely to GDP, which in turn enabled national debt growth. In one view it is self-reinforcing cycle (positive feedback). In another it is a Ponzi scheme or house of cards, as these same large houses, extra cars, and additional consumption have us accelerating into a wall of finite resources. In many ways we have been accelerating when we should have been breaking.

I don't think one size fits all. My wife very much wants to be full-time stay-at-home, and we both like the "traditional" model. If you knew her I don't think you'd see that as subservient. As for barefoot and pregnant, we're past that stage, but I did once get a picture of her about 8 months along, barefoot, in the kitchen. :)

Bigelow - "...It can't be fixed. Our energies clearly belong elsewhere. This is why so many people pay no attention perhaps? They already know it instinctively or perhaps emotionally...."

I may have misconstrued your meaning here...

My take is this. I agree this complex predicament likely cannot be fixed. Tough, violent times are likely coming. But I do not live in a vacuum. I have Kids, grandkids, friends, neighbors, etc.

Where would that be?, the the "elsewhere" within which one's energies could or should be expended? People who "sense" the coming debacle and make no attempt to understand it nor to try to prepare themselves and those around them, I do not understand.

You, I am confident, are thinking and preparing yourself as are most TAE folks.

The Globe and Mail has an opinion piece that suggests we should be optimistic because most economists are currently pessimistic and they have always been wrong before:

http://tinyurl.com/yb8st8v

Of the 31 comments already posted, everyone is very derisive of the article (one even references Mish). If this reflects the herd mentality, it makes me worry that the market bubble is indeed going to stay inflated for awhile.

Nov. 6 (Bloomberg) -- John S. Reed, who helped engineer the merger that created Citigroup Inc., apologized for his role in building a company that has taken $45 billion in direct U.S. aid and said banks that big should be divided into separate parts.

“I’m sorry,” Reed, 70, said in an interview yesterday.

OK, good enough. But get this:

From 1997 to 1999, Reed received salary and bonuses totaling $23.4 million, according to Citigroup filings. In 2000, he received a retirement bonus of $5 million, filings show. Citigroup provides him with an assistant and a New York office, for which he pays taxes, he said.

He made the common mistake of assuming that his peers all used a thought process similar to his own. Perhaps if everyone in the upper echelon of the organization would be satisfied with a mere $5 million, then the Gramm–Leach–Bliley Act would not have been catastrophic. But no. The gangster mentality is such that if one guy gets $5 million, then the next wants $50 million.

"There is a saying among some that we (the United States) are screwed, but they (everyone else) are screwed worse. What are your thoughts on this? I am not sure if I agree since the US is the most indebted country on the planet, perhaps in history. Debt = screwed the worst. Your thoughts?"

Well, you didn't ask me. But here I am. :-)

On the contrary, as an usaco, I think there's a wonderful chance the US may be among the most screwed.

The critical word is "resilience" - and usacos are so totally not.

Most other countries have citizens with many fewer delusions, much better grasps of reality, and less vacuous self-pride.

I think the probability is very high that when the millions upon millions of us who live for Friday and professional sports- suddenly have the rug pulled out from under them, they will simply lapse into catatonia.

I look forward to watching the elites apply their cattle prods to the catatonics.

It is completley false therefore to blame the problem entirely on the elite."

Please note, the USA contains some 305 millions.

I'm sure it's very comforting to believe it's everyone's fault- but it's really not true. Look up the conversations in the past here on Aunt Martha.

And there are hundreds of millions of Aunt Marthas- who did not one single greedy dishonest thing. I think you have simply had no contact with the "non" elite. I do assure you, the small town bankers and real estate salesmen are all very much elite. They had money to invest- hundreds of millions never have an investment of any kind.

This discussion of two-income families vs stay-at-home parenting is interesting. When our son was born, nine years ago, my wife and I were very career oriented and were enjoying the things two good incomes bought. She was anxious to get back to work so we hired a full-time nanny and carried on. Having said that, we quickly came to appreciate how important it is to spend time with our boy so we stopped our extra-curricular pursuits to spend most of our free time with him. As time passed, we became less focussed on career and more focussed on child-rearing, family oriented things. With the very recent birth of our second child, my wife no longer works outside the home, there is no thought of a nanny and we both agree that child-rearing is the highest priority. Fortunately, we are able to live on a single income but have significantly cut back our material expectations to do so (BTW - the type of work I do pays less well than what most docs make). We have a lovely little boy who gets along well with everyone, does well at school and has no discipline issues whatsoever, at home or at school. When our daughter is a few years older, I am sure my wife will get back into the job market. This has nothing to do with emancipation of women, it's got everything to do with providing the best possible upbringing for our kids. I feel we are fortunate in being able to choose this approach and think that society should be oriented to give that opportunity to more people.

I read some of Plato's republic some time back, his state tries to neutralise the natural corruptive forces working on ruling classes by demanding they are philosophically grounded and therefore posses a strong moral centre. Presumably, dominant sociopaths and materialists would thus be shunned from rule.

"Plato spends much of The Republic narrating conversations about the Ideal State. But what about other forms of government? The discussion turns to four forms of government that cannot sustain themselves: timocracy, oligarchy (also called plutocracy), democracy and tyranny (also called despotism).

TimocracySocrates defines a timocracy as a government ruled by people who love honor and are selected according to the degree of honor they hold in society. Honor is often equated with wealth and possession so this kind of gilded government leads to the people valuing materialism above all things.

OligarchyThese temptations create a confusion between economic status and honor which is responsible for the emergence of oligarchy. In Book VIII, Socrates suggests that wealth will not help a pilot to navigate his ship. This injustice divides the rich and the poor, thus creating an environment for criminals and beggars to emerge. The rich are constantly plotting against the poor and vice versa.

DemocracyAs this socioeconomic divide grows, so do tensions between social classes. From the conflicts arising out of such tensions, democracy replaces the oligarchy preceding it. The poor overthrow the inexperienced oligarchs and soon grant liberties and freedoms to citizens. A visually appealing demagogue is soon lifted up to protect the interests of the lower class. However, with too much freedom, the people become drunk, and tyranny takes over.

TyrannyThe excessive freedoms granted to the citizens of a democracy ultimately leads to a tyranny, the furthest regressed type of government. These freedoms divide the people into three socioeconomic classes: the dominating class, the capitalists and the commoners. Tensions between the dominating class and the capitalists causes the commoners to seek out protection of their democratic liberties. They invest all their power in their democratic demagogue, who, in turn, becomes corrupted by the power and becomes a tyrant with a small entourage of his supporters for protection and absolute control of his people.

Ironically, the ideal state outlined by Socrates closely resembles a tyranny, but they are on opposite ends of the spectrum. This is because the philosopher king who rules in the ideal state is not self-centered but is dedicated to the good of the state insofar as the philosopher king is the one with knowledge."

Quite relevant still, though this idealistic system depends on philosophers being incorruptible because they know better than to desire wealth or power, and would therefore make good rulers.

If the system is irreparably broken, then devoting time and energy to a fix is a mistake. No point in acting to change the system. Devoting effort to, as you write “[k]ids, grandkids, friends, neighbors, etc.” and your own personal situation is a better alternative.

I was ranting one detail after another about the latest corrupt act by some one of the elite's liars and the person I was directing this at said “why do you need the details, don’t you know this already?” That could describe some of the motivations behind the disaffected that don’t care and don’t pay attention. What would be the point knowing?

There are more who will blame and act out on whom ever and whatever the Limbaughs and National Socialists types tell them to. I get angry at the evil that the Limbaughs do and wish he particularly would be stopped permanently. That is a stupid wish because he would become a martyr and all his followers would be “activated” and strike back at those they had been programmed to; certainly not Elite who are the problem.

For years I thought progressives might have a chance to move politics, with think tanks like the Rockridge Institute and the Center for Media and Democracy using the techniques of the elites against them for “higher purposes”. It is too late to change the system, if it was ever possible and I doubt that too. No point wasting time. Protect you and your’s against the system. I’m sure you too have the right idea.

In the ideal state of hereditary gravicy, all capital is subject to me, and only me; thus any moral issues or philosophical arguments concerning the justness of rule are righteously weighed, balanced and decided by me and mine, so causing people and monies to fall down or float away on my command, or depending on specific density,to assume substandard orbit around my pocket.

"Some people never go crazy. What truly horrible lives they must live."

"If the banks were more strictly regulated or broken up into smaller more manageable units would they be disadvantaged when competing globally?"

That was one of the sales pitches used to remove most public regulation of the finance, insurance and real estate factions (FIRE economy)allowing them to gamble with ever riskier "instruments". Heads they win, tails we lose.

"Is it because the banks have become unofficial extensions of the government?"

You may have that backwards. The decades of revolving door policies where regulators do the work for the regulated --in return for very nice positions in industries they regulated just as soon as they leave government-- created conflicts of interest; now no one cares. And who better to put in charge of the chicken coop anyway than the fox who knows all the ways other foxes might sneak in? Government is a captive of big banks as well as weapons makers, pharmaceutical and energy interests, and not least the depredations of black budget intelligence agencies. I don't think globalism is about competing as much as it is about setting up money making sure things for special groups.

Will wonders never cease? I am on the same page as Paleocon (and Mike for that matter), and on a very different page, for once, with gylangirl.

In the final analysis, house prices are a function of family income, and the two worker family was a very major factor in the inflation of house prices, just as the no worker family will be a very major factor for their reduction.

BTW - "gylan" is an uncommon first name, so I am not quite sure what Paleocon found on Google regarding it's "meaning". What am I missing? Gylan Kain?

Greenpa

Orlov develops your theme nicely regarding most modern Usacos incapable of anything but watching American Idol, eating lunch, and shouting "We're number one." It is one of his major themes as to why the collapse of the Soviet Union (for its population) was like falling out of a second floor window, while the collapse of the American Empire will be like the fifth floor. Except we have many more guns so we can shoot each other a lot easier than the Russians. Maybe Hannibal Lecter will be Time Magazine's Man of the Year 2013, with a photo sautéing a nice, slightly hepatitic liver with onions. Yummy!

There is a lot of anxiety and quiet panic going on among many gringos in Costa Rica regarding the imminent collapse of the USD. A lot of them are changing their money into Colones, which I find amusing. A lot of misinformation among some rather wealthy people. Bernard Madoff could do well here if he weren't locked up presently for getting caught doing what the whole "industry" is doing.. I had a moment of negative truth two days ago. A new friend's pick-up truck developed a totally dead, Norwegian Blue battery. We drove into town to get a new one. It cost $200, a Korean Rocket brand sealed model. I saw it in Miami for $85 three weeks ago.

Costa Rica has no shortage of lunch easters on the government payroll in high plsces, and the duties here are outrageous. The managers in the financial sector have doubled their income in the last ten years, and the gulf between the rich and the poor is growing rapidly. However, the court system appears more honest and just than the USA. There is trouble brewing in paradise. Gringo tourism, gringo development, and gringo retirees have blown a big bubble here and it's going to wind up all over the national face when it pops. I figure the solution will be to raise taxes to keep the luncheaters in lunches. Speaking of which, middle age people are almost as chunky here as Walmart shoppers with a cart full of Cheeze Doodles:-)

I did manage to rent today a rustic 3 bedroom house, sparsely furnished for $250 a month, plus maybe 5 hours a week of light labor using my plumbing, electrical, carpentry type skills. Only problem is that the only tool available seems to be a very large Leatherman I brought with me. CR changed the rules about 2000, and it seems that they will charge me a fortune to bring in my metal Greenlee box in storage in FL which has about 500 pounds of all my tools in it. The house is on a gorgeous five acre lot with towering cedars, fruit trees of all sorts, a spring feed swimming pool, and lots of sloths to relate to in my retirement.

I met a extended gringo family from Texas in their late sixties today who moved themselves and everything in their three bedroom house to CR having never visited here previously. Of course they got totally ripped off from stem to stern. Must be something in the water in Texas that blocks the cerebral synapses but makes the trigger finger quiver.

I am also going to take a look at the high mountain country of Panama eventually. They are making it much easier right now for pensioners than CR,. Also, they are using the USD as their currency, so I would be following a Stoneleigh rule and not have to worry about foreign exchange. I would just have to worry how to get my dollars from my bank to Panama when restrictions hit. Wonder if they will still let one fly around legally anywhere with $10,000 in Franklins the way they do now.

Ok, maybe I should have used useless instead of stupid. And we could make Europeans feel real rich by recalibrating Frankfurt or Amsterdam into USD. Or Zimbabweans poor. But the S&P could still not be deflated by the Euro. Or gold. The currency in which an exchange trades can't just be disconnected from it simply because it looks spiffy in a graph.

The fluctuations between currencies are integral parts of a stock exchange and the value of almost any company listed on it. You can argue, as I do, that the surge in gold exists primarily because for those looking at the USD. But that doesn't mean you can take the S&P of the past 5 years, look at gold over the past 5 years and claim that anything has changed. You can't, precisely because things would indeed have been different if the S&P were based on the value of gold. It's not, it's based on USD.

It really is Heizenberg: you can't know two variables at the same time, because looking at one fundamentally changes the other.

If you look at the dollar index, the dollar is judged against other currencies, no? If the dollar can be judged then what makes the S&P so special. particularly as it is denoted in dollars and currently those are inflating against almost anything one cares to measure them by? No uncertainty about all this, Heizenberg only comes into this matter in orrder to roll in his grave at the unprincipled way you use his principle.

However, I imagine that the groups you mentioned (banks, energy companies, etc.) don't always see eye to eye or have the same interests.

Do you think it would be correct to say that currently government at the highest levels acts as an arbitrator or mediator between these interests or is there one group or constituency that trumps all the others and as a result gets to call all or most of the shots?

In Cyprus-Limassol, the economy runs from the income from tourism and expats.The drop of incomes are going to make life miserable for all.There is a lot of historical buildings that need major maintenance and it will not get done.

Going back "home" for a better life may prove to be an unfulfilled wish.jal

There are several commodities exchanges around the world. They may all clear transactions in the local currencies. However, that does not not negate the fact that these same commodities are also traded on exchanges with currencies of different denominations.

There have been many charts recently of the performance of gold against the various major currencies over various recent/historical time standards. These comparisons are valid and interesting.

What this would leave us with is a liquidity pyramid which ends with bank loans, which are much more manageable and whose risk can be controlled. It would also leave the world with a fiat currency system, which would lose about 10x of its value overnight, thereby leading to an instantaneous and global unwind of fiat money, and rolling waves of domestically denominated hyperinflation. A spectacular race to the bottom of the asset pyramid. And who will rather commit suicide than see that happen: why the Federal Reserve of course.

Sure, you and Stoneleigh are welcome to come down anytime and defrost those frozen Canadian buns. But it is no five star accommodation. San Isidro is about an hour or two by bus from the Pacific beaches.

Re Heisenberg's Uncertainty Principle

What it basically says, if I recall correctly, is that the product of the delta of uncertainty of any two quantities which has the dimensions of Planck's constant (which I believe is erg-sec), cannot be less than Planck's constant divided by two pi. But Planck's constant is a very, very tiny number. But if you look at matter closely enough, it's like blowing up a grainy photograph. Reality is basically grainy.

But this can have a huge effect on the macroscopic universe. For example, without this quality in matter, stars wouldn't shine. Because the protons or nuclei would repulse each other too strongly regardless of the temperature to allow them to get close enough for the strong nuclear forces to "glue" them together. But the uncertainty principle allows a proton to pop out of it's position for a picosecond and reappear close enough to another proton to permit fusion. So it would be a freaking cold universe, sort of like Canada in February, without the uncertainty principle in action.

If Gravity does quantum as well as relativity, he is welcome to correct this. I learned it in the last academic course which I will take in this incarnation, and that is not a coincidence :-)

What is the game plan for the government and the financial elites going forward is I guess what I keep wondering here? How deep does the rabbit hole go?

They have shown they can engineer an impressive rally. And they have obviously engaged in a coordinated campaign to make us feel as if we are coming out of the woods.....do they themselves believe this? Are they just crossing their fingers and hoping? Or are they aware of the coming maelstrom? Opinions?

Hello Wolf,

I'm wonderin' if the powers that be can amortize their toxic debt to infinity and beyond. As long as the other players agree I don't see why they can't.

Well el Gal not being a Chemist/plumber but a mere and simple fisherman artist, I had to appeal to an a friends insight into the deeper aspects of these matters, so without further ado my buddy says:

" Thanks for the primer, El. I might mention that "the delta of uncertainty" makes no sense as a phrase. It's just the product of the uncertainties, or standard deviations in observables. Also, if you're in the mood for some heavy math and a bit of trust in the canonical commutator relationship (at the core of the uncertainty principle), you might want a look at the generalized uncertainty principle

Of course, by the correspondence principle, the effects of quantum mechanics on a macroscopic scale must correspond with our observations on such a scale (kinda self evident). Aside from a few things, like the double slit experiment (on single electrons/photons) and blackbody radiation, there's little in our world that's particularly quantum. Newton and Maxwell are fairly sufficient. If you can find a nonzero commutator relationship between the S&P and gold, perhaps you'll have something there. Otherwise, it is entirely NOT Heisenberg."

I noticed that particularity but didn't want to go there, must be my overly humble personality, but yes, "Over 70 multiple orgasms" within a reasonable timeframe, say a week, would have been a challenge even at age 12.

If you need a friend to help you on Heisenberg, I'm pretty sure you can't tell me much of anything on the topic.

If the S&P had been tallied in gold and not in USD over the past 5 years, the S&P itself would have behaved differently.

And yes, that is Heisenberg speaking. Loosely. There are things in the macro world too that you can't prove because of elements that influence each other.

if I hadn't met that girl 10 years ago, or last year, or yesterday, would I have been the same person? I cannot know. It is not knowable. If I had woken up at 8 AM this morning instead of at 6 AM, would the word have been as I experience it right now? I cannot, by definition, know.

Yeah I looked at the Heisenberg wiki page too. But my eyes glaze over at all the pitchforks and squiggles any more, I'm just glad I won't have to cough up that stuff on another P Chem test.

But my understanding of the Ultraviolet Catastrophe was this: if the Bohr atom were the correct model (a tiny solar system), and if electrons weren't restricted to their quantum states, they would emit electromagnetic radiation (like an oscillating electric charge makes radio waves) and lose energy, spiraling right in until they squat directly on the nucleus. The emitted radiation would be in the ultraviolet.

The wiki page has a different explanation revolving around black body radiation. But the bottom line is this: without Heisenberg's principle, and Planck's constant and Schrödinger and the rest of it, our universe could not exist.

If you need a friend to help you on Heisenberg, I'm pretty sure you can't tell me much of anything on the topic."

That is no argument !

ilargi you have told many to learn to read, I suggest that you might try the same and read what Jesse is saying not what you would want him to be saying.

I do not understand your animosity in that direction as I do not understand your desperation to be always right no matter how wrong you are shown to be. How can anyone trust the words of one who considers himself never wrong.

Blacksmith--I think it will be many, many years before we run out of hinges and doorknobs to salvage, such that actual smithing will be very useful. Surely beyond my lifespan.

Smithing should indeed be useful, although there may be times when finding sufficient energy could be a challenge. The same would go for glass-blowing. Glass used to be extremely valuable because of the energy required.

Metal joining--@snuffy and Greenpa. This I highly agree with. I have been thinking about taking a welding course and buying a TIG welder. I already own a MIG, not that I am any good with it. So, I would need to think of some way to practice joining metal. I have also thought about a small mill and lathe, but that would be pretty hard for me to get good at, to find a place to store and use.

I think you'd need to do some courses in order to climb the learning curve in time, but it sounds like a useful skill.

Electric vehicles--The need to practice metal joining would fit nicely with building electric bikes/EVs. Much cheaper transpo than cars. But, in a world in which Stoneleigh is predicting the end of access to gasoline, are we really going to have access to electric motors and controllers? I am not so sure.

Electric bikes could be useful for quite a while. I don't know easy it would be to make one without access to parts from elsewhere though. Working with ordinary bikes would be good, especially if you could get hold of some inventory of spare parts in advance. They'd probably make good barter goods if nothing else.

Motors--EVs suggest learning more about electronics, how to fix and control electric motors mainly. Also, how to build generators and whatnot. Building vehicles from salvage might have a lot of legs on it.

Sounds good to me.

Baker--I knew a guy who built a brick oven in his driveway and delivered bread by bicycle. I think this might work in the first and third phases of collapse, but I can't see people paying six dollars a loaf in the slide downwards. So then this is not really useful when I need it most, in the deflationary crash. Furthermore, I am not so sure the corporate megabakeries won't kick it into overdrive--we could see the conditions of medieval bread riots where bakeries are cutting the flour with gypsum or sawdust.

I think people will bake their own bread if they possibly can, as it doesn't require that much skill or special equipment. You'd be better off developing a specialist skill that people would be prepared to part with scarce cash for.

Brewing beer--I like drinking beer, but I have only made it at U-Brews. I think there are a lot of people who know a lot more about this than me.

Making beer and other alcoholic beverages will be very useful, as alcohol sterilizes water, even in small quantities. In England in Shakespeare's day everyone drank ale, even the babies, because the alternative was contaminated water that would likely kill you.

Carpenter--A lot of people have this skill, especially here in Vancouver where we have had an orgy of condo building.

This is a useful skill, if only to be able to do as much as possible for yourself, so that you won't need to use scarce cash to pay someone else to do such things for you. It might not earn you a living though.

Sewing--I am pretty good at sewing, thouh not great. But Vancouver actually has quite a Chinese sweatshop industry, so I don't see myself being competitive.

You probably wouldn't be competitive, as you say. As above, it's a good skill to have the basics of though. I could do this myself, but I'm not sure people would pay me for it. I spent some time as a handwork teacher at a Waldorf school, so there are many related skills I could use or teach (and we produce our own fiber).

Moonshiner--I have heard of a moonshine-fuelled fundraiser in my city, so some people are on this. I wonder if this will run afoul of the taxman as the government tries desperately to maintain revenues.

Yes, it would be risky as it will almost certainly be illegal. If you could live with the risk it would probably be lucrative though. Making and selling cigarettes would fall in the same category.

Gardener--Some people are gardening other people's yards, and even selling the produce at markets. I don't see this being entirely durable, as I imagine homeowners will start wanting to grow their own vegetables in their own yards.

People will almost certainly do this for themselves if they possibly can.

Urban orchardist--Walk around the city pruning and feeding fruit trees in peoples yards. Pick and sell fruit for as long as that is possible, and after that, rely on people giving you bags of fruit in exchange for your services.

This kind of skill-bartering model is likely to be important. Swapping goods and services will probably be more common than swapping either for money for a period of time, simply because people will have so little money that they won't want to part with whatever money they have.

Micro Food Processing--Locally process food and sell jars of it under the Vancouver brand. So, #2 tomatoes could be sold as pasta sauce. This leverages the local eating movement and gets me into the food supply industry, which I think is a good place to be. This would be a real business, and getting real loans is not something I feel that comfortable with right now.

I would definitely avoid the loans, as you say.

Deposit container supplier--Another business idea, needing real loans in a crshing economy. Anyhow, the idea is to provide reusable containers to food manufacturers for yogurt, beverages, sauces etc. This is happening for milk and beer already. It can be quite a savings to reuse containers, is very good for the environment, and will support local food. Could also be expanded to restaurants for take-out containers.

Sounds good, except for the loans part. Food storage will be a big issue in an energy constrained world, and a lot of people are going to end up giving themselves botulism. Learning and teaching food storage techniques (as Sharon Astyk does) will be valuable.

Sail Cargo--There is a sail freight association in the Pacific Northwest and some orgainc food moving by sail, maybe near San Francisco? I like sailing, but the power of the ocean scares me. Realistically, weather will get worse thanks to climate change and pirates would be expected. Also, the girlfriend will really not be too fond of this idea.

Piracy will be a given. Sail is very efficient transport in an energy constrained world though.

Last idea for the fantasy world of getting some land...plant nut trees, raise hogs that eat the nuts, and then make ham. In other words, specialize a bit in meat smoking and preservation.

Eating the nuts yourself would probably be a better idea. Access to dietary fats is going to be a very big issue going forward (as Dr J would no doubt be happy to explain).

Oh, and my mother's favourite--become the resident caretaker for an apartment building.

Not a bad idea at all. Being a jack-of-all-trades who uses his skills in exchange for accommodation and a measure of safety in numbers could work well.

To those misconstruing my prior comments as a) opposing the choice/value of stay at home moms or as b)denying that two income households are overly indebted: I do not say that.

1. I have been in these categories myself: nonmarried employed childless and married employed mom and married non-employed mom ["stay at home mom"]

2. I do not claim that women should or should not be one or the other category. Many like myself will transition from one to the other during their lifetimes.

3. My objection is when married women are induced by public policy/ cultural pressure to choose an option that does not serve their own and their family's economic /social needs.

4. It is a very short distance from the false claim that 'two income households drove up home prices for single income households' to the claim that 'married women ought be discouraged from paid employment'. This discriminatory line of thinking caused ongoing tax discrimination against secondary earners in the usa after 1948 [but not in europe]. Secondary earner tax policy was intentionally designed to get WWII married women out of the paid workforce and back into the home. Not one feminst .org has even bothered to get that 1948 era sex discrimination eliminated. Instead they blame mothers married [to higher income fathers] for "choosing" to leave the paid workforce. The same tax induces lower income women to eschew marriage altogether. Hence the CHRONIC single mother phenomena among poor Americans, which feminists support as a 'choice'& nonfeminists blame on the race's bad 'morals'.

5. While it is true that two income households cannot keep up these days; it is not due to dual incomes. ccpo, even elizabeth warren does not blame the problem on dual incomes but on low wages.

Correlation does not mean causation. One could likewise claim that the civil rights movement resulted in everyone's higher cost of housing - and college education for that matter - using the same correlative reasoning, and it too is wrong.

Rather, wages have not kept pace with inflation because of the reduced power of unions and because earned income is taxed more than non-earned income due to lobbying pressure from capital income interests. [Also nafta]

5. The rise in housing prices was caused by improper monetary policy ie supressed interest rates used to create a bubble. A low rate means lower monthly payments meaning you can afford to buy even 'more house'. Higher debt income ratios were irresponsibly hawked by mortgage bankers who sold the risk.

So single earners, blame your inability to afford a house on the Fed not dual income couples. Blame latchkey children on the worker's inability to afford childcare. America prioritized other subsidized needs as more important than workers' kids: war profiteering, health insurance profit, insane bank bailouts. Blame women's higher poverty rates on tax policies simultaneously forcing married high earners out of the workforce and forcing low earners to stay out of wedlock. This means that the number one factor predicting an American woman's poverty in old age is... Motherhood! Disgraceful.

And to Gylangirl et al. re: single or dual incomes...the big promise of progress and technology and capitalism has been to make our lives better--and often specifically to give us more free time. Instead, we work more than ever to buy more than ever, requiring ever more work hours.

It would be interesting, based on the time when dual incomes became 'necessary', to calculate what the possessions of that household would cost in today's dollars. Obviously the house itself will skew things, but no flat-screen TV, no playstation, no billions of toys, no electric can-opener, maybe no dryer, just a clothesline--et c.

I have a friend who has told me many times to stop worrying about the economy"Because its all made up...Really! this "economy"is a fiction that we all believe in".

I have the devils own time discounting his reasoning.Or his logic.

He believes that the "truly"wealthy will be bright enough to remember what happened to the french aristocracy after a comment about letting them eat cake came out...

I don't....

I think they are more of the mindset of that creep the "Insider",and have little understanding of the blackness that fills the heart of those who are hopeless,and feel cheated...those who have nothing left but some weapons and a bad attitude..

...and there are thousands and thousands of potentials being formed every day this grindingly slow decent continues.

The reason 100% of the senate voted to extend un-employment bennies was simple...They have seen the future from better info than you and me...and could not face the public for re-election with a no vote on their record.

Something I have noticed in the perusals of craigs list sailboats.Deflation.thousands and thousands of dollars dropping in price of exactly the boats I have been drooling over for the last couple of years.

The same boats that would have cost 25 grand 2 years ago are 10-12,and dropping fast...With my luck though,the same time they hit my range will be the same time I join the ranks of the un-employed again

...It may be sooner with the Kick-your-face-in attitude of management these days...work is not fun

Stoneleigh/Ruben: "Last idea for the fantasy world of getting some land...plant nut trees, raise hogs that eat the nuts, and then make ham. In other words, specialize a bit in meat smoking and preservation.

Eating the nuts yourself would probably be a better idea. Access to dietary fats is going to be a very big issue going forward (as Dr J would no doubt be happy to explain)."

:-) We so desperately NEEDED pigs this year. Working on getting there. We grow multiple tree/nut crops- and the way it worked out, one of them was a disaster- lost almost all of it. Because of weird ripening weather. The crop came down in such a fashion that it was about 20x as much work as usual to gather it.

Doesn't happen much; but count on it - it will happen. The pigs wouldn't have given a damn. They would have worked day and night eating everything.

The evidence from both American history and the actual fat analyses done on pata negra pigs in Spain is that pigs fed on nuts drastically alter their storage compounds. The Spaniards are maketing their jamon Iberico as coming from "olive trees on four legs." The fat is semi-liquid at room temperature, not hard, and definitely contains a lot of monounsaturates and Omega-3s.

Plus- cured pork is an extremely valuable, portable, and non-perishable trade item. Same reasons that before Prohibition in the US, 70% of the national apple crop was marketed as hard cider.

Even in good years, nut harvests are labor intensive. If you've got someone on your work force out with a broken leg, or whatever- you are going to lose a large proportion of the crop. Pigs will harvest it for you.

Which is not to say it's all easy. You must become an expert swineherd. A distant neighbor here heard about the "acorn" fed pata negra pigs, and the insane prices paid for it (over $150/lb sometimes)- went out and turned 80 some hogs into an unused oak woodlot, with a big acorn crop.

In 2 days, they were all dead. I'm not sure why- but there are a dozen possible reasons- chief suspect for me is the acorns were from red-black oaks, not white- black oak acorns are considerably more toxic. Pigs probably could have adapted- but not all at once.

The guy who did this was an idiot, of course- he insanely assumed all he had to do was follow the directions in the magazine- anyone who was already feeding 80 pigs should have known better.